Archive for November, 2014

Senator Leahy Comments on Record-Breaking Fraud Enforcement Penalties in 2014

Tuesday, November 25th, 2014

Senator Patrick Leahy (D-VT), Judiciary Committee Chairman, reported that the Department of Justice recovered a record-breaking $24 billion under the False Claims Act in 2014 for civil and criminal penalties. The majority of the penalties were related to the financial crisis that started in 2014 and included financial institutions such as Citibank and JP Morgan. In 2009, Senator Leahy authored a law, Fraud Enforcement Recovery Act, which aids federal prosecutors in going after those who commit financial fraud by strengthening tools and increasing resources for prosecution. A bipartisan bill coauthored by Senator Leahy and Senator Chuck Grassley (R-Iowa), Fighting Fraud to Protect Taxpayers Act, was overwhelmingly supported by Congress. The bill would reinvest some of the money collected, at no expense to the taxpayers, from fraud cases back into the law enforcement of fraud.

Senator Leahy stated, “This is a win for taxpayers, for law enforcement, and for accountability. The Justice Department should be commended for its record-breaking recovery of nearly $24 billion in civil and criminal penalties for fraud against the government and the American people, and particularly those families who suffered financial hardship as a result of the 2008 economic crisis. Many of these cases were brought under the Whistleblower provisions of the False Claims Act – a critical tool I have long supported which fights waste, fraud and abuse.”

For more information, please click here.

Decision on the Use of Statistical Sampling in False Claims Cases

Wednesday, November 12th, 2014

A district court in the Eastern District of Tennessee recently upheld that utilization of statistical sampling to establish liability in false claims cases.  This ruling should expand the prosecutorial capabilities of the federal and state governments , by encouraging them to pursue ever larger companies and individuals who submit a significant number of false claims for payment to the government, without causing concern for the overextension of limited government resources.

The U.S. filed a consolidated complaint based on allegations raised in two separate and later consolidated qui tam actions filed by whistleblowers Glenda Martin and Tammie Taylor against Life Care Centers of America, Inc. (“Life Care”)(Case. Nos. 1:08-cv-251 and 1:12-cv-64), the owner of over 200 skilled nursing care facilities.  The U.S. consolidated complaint alleged that Life Care pressured its rehabilitation therapists to maximize the intensity, type, and length of care a patient received in order to exhaust Medicare’s skilled nursing facility benefit.  According to several allegations raised by the U.S., these rehabilitation determinations were made without regard to whether the therapy was medically reasonable or necessary and was, on occasion, even unskilled.  Life Care allegedly submitted 154,621 claims on behalf of 54,396 patient admissions to Medicare for reimbursement from January 1, 2006 through October 31, 2012.

Due to the vast number of claims submitted by Life Care and the difficulty in reviewing each one individually, the U.S. sought to utilize statistical sampling on 400 patient admissions at 82 Life Care facilities where more than 65% of patient days were engaged in an intense level of therapy in order to extrapolate and demonstrate the invalidity of all of Life Care’s claims.  Life Care filed a Motion for Summary Judgment challenging the use of statistical sampling in order to establish liability.

Specifically, Life Care argued that the government could only establish liability by reviewing each claim for payment individually because otherwise it could not establish the False Claims Act elements of presentment of a claim, falsity, scienter (or knowledge), and materiality.  However, the court noted the impracticability of such a requirement, considering the size of the universe of claims at issue.  It held that the purpose of statistical sampling is to locate similarities and probabilities even where the individual claims contain slight differences and that, with such sampling, the government could identify claims and demonstrate falsity.  The court also held that it was sufficient for the U.S. to demonstrate scienter on each of the claims in the statistical sample and then, again, extrapolate.  Moreover, the court held that Life Care’s concerns about materiality were premature considering that the U.S. argued that its model took into account various formulations for the overbilling and that the fact finder would have the ultimate responsibility of discerning whether such modeling was correct.

Finally, Life Care argued that statistical sampling would impact its right to due process, as it would not be allowed to develop a defense with regard to each individual false claim.  However, the court disagreed with this point, noting that other courts had permitted the use of statistical sampling and that Life Care would have the opportunity to cross-examine the U.S.’ witness to challenge the government’s statistical sampling methodology and counter such analysis with its own expert.

The court concluded that nothing in the False Claims Act prohibits the use of statistical sampling to establish liability, but the court reiterated that it is up to the fact finder to determine if the sampling is accurate and reliable.

Attorney General Holder Leaves Legacy on False Claims Act

Monday, November 10th, 2014

As Attorney General Eric Holder prepares to step down, his success with False Claims Act cases is being highlighted by the Department of Justice. Amongst his greatest legacy is the creating Heath Care Fraud Prevention and Enforcement Action Team (“HEAT”) in 2009. Since its inception in 2009, the HEAT team has conducted six nationwide enforcement actions resulting in charges against 600 individuals and a financial recovery nearing $2 billion. Additionally, the Department has recovered more than $20.2 billion as a result of False Claims Act actions since 2009.

Highlights of the enforcement efforts include a record breaking 2013 recovery of $3.8 billion. This is the second largest annual recovery in history, bested only by a $5 billion recovery in 2012. The largest recoveries in 2012 were attributed to off label marketing of pharmaceutical drugs, including record breaking recoveries from GlaxoSmithKline. Additionally, the Department received an all-time high of 752 relator actions under the False Claims Act in 2013, double the number since 2009. Attorney General Holder is credited with creating a relator friendly attitude at the Department of Justice.

Northrop faked tests of GPS systems, whistle-blower suit claims

Monday, November 10th, 2014

A recently unsealed qui tam complaint alleges that Northrop Grumman Inc. repeatedly lied that it had performed certain quality control testing on a navigational device used in military fighter jets, drones, and submarines in order to save time.  Relator Todd Donaldson, a Northrop employee who was allegedly demoted from his position as plant manager at Northrop’s Salt Lake City, Utah facility because of his whistleblower activities, alleged that Northrop employees routinely skipped the 10-minute test of the LN-100 navigational systems to ensure that they were properly communicating with satellites.  Because these tests were skipped, Donaldson complained, any military aircraft containing the LN-100 would be prone to an accident as its global positioning system would be off; likewise, weapons might miss their intended targets.

Although Donaldson did not name any specific accidents that occurred as a result of this alleged scheme, the Los Angeles Times reported that in May 2011, the Air Force blamed the LN-100 for the crash of a Predator drone in Djibouti; pilots were not aware that the drone was actually 400 feet lower than the navigational system indicated, and the drone flew into the ground.

Donaldson initially filed his lawsuit in 2012, but it was unsealed recently after the U.S. declined to intervene and take over the litigation.  Donaldson has decided to proceed with the litigation on his own, although the U.S. retains the right to intervene at a later date.  The case is U.S., ex rel. Donaldson v. Northrop Grumman Corp., Case No. 2:12-cv-00884 (D. Utah).

After Admitting to Creating Front Company, North Florida Shipyards to Pay $1 Million

Friday, November 7th, 2014

After admitting in April 2014 to creating a front company, in order to obtain Cost Guard contracts designated for Service Disabled Veteran Owned Small Business (SDVOSB), North Florida Shipyards as well as its president, Matt Self, have agreed to pay the United States $1 million to resolve False Claim Act allegations. These allegations were first brought to light by the filing of a qui tam Complaint by whistleblowers Robert Hallstein and Earle Yearger. Hallstein and Yearger will share in $180,000 of the $1 million settlement.

The United States alleges that North Florida created Ind-Mar Services Inc. as a contracting vehicle to obtain work from the Coast Guard designated for SDVOSB. To qualify as a SDVOSB, a company must be operated and managed by service disabled veterans who also must perform at least 51% of the labor. While the Coast Guard contracted with Ind-Mar, the work was performed by North Florida and North Florida received all the profits from the contracts. The government further alleges that had they known that Ind-Mar was simply a front company, they never would have awarded them the contracts to repair five Coast Guard ships.

In December 2013, the Small Business Administration suspended North Florida, Matt Self and three others from government contracting and in April 2014, they entered into an administrative agreement with the SBA admitting to creating and operating Ind-Mar in violation of its Coast Guard contracts and SBA statutes and regulations. The investigation was coordinated by the Civil Division, the U.S. Attorney’s Office for the Middle District of Florida, the Department of Homeland Security’s-Office of Inspector General and the SBA Office of Inspector General.

For more information, click here.

$6 Million Settlement in Bone Growth Stimulators False Claims Act Suit

Tuesday, November 4th, 2014

In another win for the HEAT (Health Care Fraud Prevention and Enforcement Action Team) initiative, EBI, LLC, a medical device company in Parsippany, New Jersey, doing business as Biomet Spine and Bone Healing Technologies and Biomet, Inc., will pay $6 million to resolve allegations of violations of the federal Anti-Kickback Statute. Yu Yue, a former product manager for EBI, kicked off the investigation when she filed a qui tam suit in federal court in New Jersey. Yue’s share of the $6 million recovery has not yet been determined. The United States alleges that EBI paid staff at doctor’s offices through personal service agreements to influence doctors to order its bone growth simulator, which is used to repair slow to heal fractures. The United States determined the personal services agreements with physicians’ staff violated the Anti-Kickback Act, resulting in false billing to federal healthcare programs. Additionally, the $6 million settlement resolves allegations that EBI received federal reimbursement for bone growth simulators that had been refurbished.

The investigation was coordinated by the Commercial Litigation Branch of the Civil Division of the Department of Justice, the U.S. Attorney’s Office for the District of Massachusetts, HHS-OIG, the U.S. Postal Service Office of Inspector General, the Defense Criminal Investigative Service, the U.S. Department of Veterans Affairs, Office of the Inspector General and the U.S. Food and Drug Administration, Office of Criminal Investigation.

For more information, please click here.

Army Contractor Agrees to $10 Million Settlement to Resolve FCA Allegations

Tuesday, November 4th, 2014

After a coordinated investigation by the Commercial Litigation Branch of the Justice Department’s Civil Division, the U.S. Attorney’s Office for the District of Colorado and the Defense Criminal Investigative Services (DCIS), First RF Corporation has agreed to pay $10 million to settle False Claim Act violations. The allegations arose over a 2005 Army contract with First RF for the sale of electronic warfare antennas. At the time, the antennas were urgently needed. First RF is accused of misrepresenting the cost to manufacture the antennas, thereby inflating the price paid to First RF by the United States’ Army. First RF is an antenna and radio system company in Boulder, Colorado. The $10 million settlement did not require First RF to admit liability.

For more information, please click here.