Tenth Circuit Holds Medical Judgment Not Always an Ironclad Defense in FCA Cases

July 16th, 2018 by Alexander Owens

On July 9, 2018, the Tenth Circuit Court of Appeals, in U.S. ex rel. Polukoff v. St. Mark’s Hosp., 17-4014, — F. 3d —, 2018 WL 3340513 (10th Cir. July 9, 2018), was faced with an interesting question: whether a physician’s certification of medical necessity could be deemed “false” for purposes of the False Claims Act where no national or local governmental guidelines addressed the propriety or necessity of the physician’s specific services.

The case before the Court of Appeals involved allegations that a defendant physician, who had worked at two defendant hospitals, had systematically performed thousands of unnecessary heart surgeries for patients suffering from Patent Foramen Ovale (“PFO”), a heart condition. There was no specific guidance from Medicare addressing the physician’s practices. The District Court had granted the defendants motion to dismiss and concluded that the necessity of the doctor’s services was a matter of medical “opinion” or judgment and accordingly could not be “objectively false” under the FCA absent some regulation on point.  Id. at *5.  Relator’s appeal followed.

While there were no regulations addressing the practice at issue, the Complaint, and the Circuit Court in reviewing the sufficiency of the Complaint, looked to the American Heart Association’s and American Stroke Association’s guidelines addressing the appropriate surgical criteria for patients suffering from PFO. Both associations set forth that surgery should only be employed in certain cases of PFO. The physician was alleged to have routinely performed surgery on patient’s suffering from PFO in contravention of the AHA and ASA standards.

The Tenth Circuit recognized that “[o]ne factor that contractors consider when deciding whether a service is appropriate is whether it is [f]urnished in accordance with accepted standards of medical practice for the diagnosis or treatment of the patient’s condition or to improve the function of a malformed body member.” Id. at *2 (internal quotation marks omitted). The Court determined that even absent a federal regulation or guideline addressing the specific medical decision, the claims could be deemed false.

The Court set forth three reasons for its holding: “First, we read the FCA broadly. Second, the fact that an allegedly false statement constitutes the speaker’s opinion does not disqualify it from forming the basis of FCA liability. Third, claims for medically unnecessary treatment are actionable under the FCA.” Id. at *8 (internal quotation marks and citations omitted). The Court noted that the Medicare Program Integrity Manual sets forth a definition for “reasonable and necessary,” even if it does not address any particular medical service. Id. at *9. Accordingly, “a doctor’s certification to the government that a procedure is ‘reasonable and necessary’ is ‘false’ under the FCA if the procedure was not reasonable and necessary under the government’s definition of the phrase.” Id.

As to fears that the Court’s decision would needlessly expand liability among medical professions, the Court explained that while the Program Integrity Manual’s definition is broad, the Escobar decision made clear that the materiality and scienter requirements of the FCA will prevent liability from ballooning. The Tenth Circuit recognized that the District Court’s holding would have created an FCA loophole by permitting bad actors to run up medical bills by performing unnecessary services whenever the specific medical service’s necessity is not addressed by federal regulation.

Where Does Supreme Court Nominee Brett Kavanaugh Stand on the False Claims Act?

July 10th, 2018 by Elisa Boody

On Monday night, D.C. Circuit Judge Brett Kavanaugh was selected by President Donald J. Trump to succeed Justice Anthony Kennedy on the United States Supreme Court.  The 53-year-old Kavanaugh has spent the last 12 years as a federal judge on the D.C. Circuit Court of Appeals where he authored over 300 opinions.

While many are rightfully concerned with the implications this appointment may have on the Second Amendment, abortion rights, the future of healthcare, and executive branch authority, this potential Supreme Court Justice may also make critical decisions related to the Federal False Claims Act.  To that end, I decided to review all of the FCA cases where Kavanaugh was a presiding Circuit Judge in the D.C. Circuit Court of Appeals over the last 12 years.

Since Kavanaugh’s appointment by President Bush, there have been 18 decisions related to the False Claims Act by D.C. Circuit Court of Appeals panels that included Kavanaugh.  Some of these decisions only make passing references or comparisons to the FCA statutes and a few were unpublished decisions related to legal affirmations that Relators may not proceed with FCA cases pro se.

You might be interested to know that of all the FCA-specific cases that I reviewed, all of the decisions by panels where Kavanaugh presided were either per curiam or unanimous decisions. This would imply that Kavanaugh did not have serious differences of opinion with his fellow Circuit Judges when it came to interpreting the False Claims Act.  Also of note, Kavanaugh has authored the opinion for only one of these FCA-specific cases.

Judge Kavanaugh authored In re Kellogg Brown & Root, Inc.,  410 U.S. App. D.C. 382, 756 F.3d 754 (2014), an opinion well-known for its application of the attorney-client privilege.  That case stemmed from United States ex rel. Barko v. Halliburton Co., where a Relator alleged that his employer, Kellogg Brown & Root (“KBR”) and certain subcontractors defrauded the U.S. Government by inflating costs and accepting kickbacks while administering military contracts in wartime Iraq.  During discovery, the Relator sought documents related to KBR’s prior internal investigation into the alleged fraud.  The District Court ruled that the attorney-client privilege did not apply, but KBR petitioned for a writ of mandamus and asked to vacate the production order.

The D.C. Circuit Court of Appeals and Kavanaugh granted mandamus relief.  Writing for the court, Kavanaugh held that the district court had erred and that KBR’s internal investigation was protected by the attorney-client privilege.  Kavanaugh further held that the Relator was able to pursue the facts underlying KBR’s investigation, but he was not entitled to KBR’s own investigative files.

Of interest, while that case dealt primarily with the attorney-client privilege in a qui tam action, Kavanaugh also sat on the panel that unanimously decided United States ex rel. Purcell v. MWI Corp., 420 U.S. App. D.C. 176, 807 F.3d 281 (2015).  The outcome of this case was considered to be a significant setback for the U.S. Department of Justice.

In United States ex rel. Purcell v. MWI Corp., the court reversed a multimillion-dollar jury verdict for the government and remanded the action to the district court with instructions to enter final judgment for MWI.  The Court of Appeals ruled that the Defendant manufacturer’s failure to report its sales agent’s commission did not violate the FCA.  In coming to this result, the court held there was not sufficient evidence that the manufacturer was “warned away” from its interpretation of the regulations.  In other words, the court held that the manufacturer could not have knowingly submitted false claims because it relied on a reasonable interpretation of an ambiguous term that the government left undefined.  The court also rejected a number of FCA arguments the Justice Department routinely makes in response to “ambiguous regulation” defenses.  This decision undoubtedly limited FCA liability.

Judge Kavanaugh is certainly familiar with the False Claims Act and the above cases may provide some insight as to his view on future cases that are brought before him.

Court Orders Ex-Postmaster to Pay over $353K for Stealing $9K from the Post Office under the FCA – Not Deemed an Excessive Fine

June 20th, 2018 by Elisa Boody

A postmaster in South Dakota has been ordered to pay a civil judgment of $353,441.42 to the United States for defrauding the United States Postal Service (USPS). In United States v. Christeson, Judge Karen E. Schreier of the United States District Court for the District of South Dakota granted summary judgment in favor of the government, finding that the defendant intentionally and falsely certified that he was issuing refunds when in fact, he was keeping the money for his own purposes. Of note, the court found that under the False Claims Act, a $353K judgment was NOT grossly disproportional to the $8,970.71 that the post master stole from the USPS.

The Underlying Fraud Allegations

From 2010 to 2015, Craig Christeson served as the postmaster in two different South Dakota post offices. The USPS sells postage meters to permit customer to print out their own postage. When an envelope is put through a postage meter, but the resulting postage strip is not used, the resulting postage meter strip is said to be “spoiled.” When this occurs, a customer may bring the spoiled postage meter strip to the post office and receive a refund or credit.

As the postmaster, Christeson was responsible for verifying and issuing refunds to customers. Sometime in 2013, Christeson began falsely certifying that he had received spoiled postage meter strips from customers when he had not. He would then print a money order in the name of the fake customer, cash the money order at the post office, and keep the money. The USPS suffered damages totaling $8,970.71. Christeson pled guilty to the criminal charges against him and was sentenced to probation and to pay restitution. There was then a civil False Claims Act case brought against him.

The Court’s Findings on the Excessive Fines Clause

The court found that Christeson’s guilty plea in his criminal case included admissions that established the essential elements of an FCA cause of action. Accordingly, the court granted summary judgment. Turning to the damages calculation, the judge found that the proper damage award was the statutory treble damage figure ($8,970.71 x 3 = $26,912.13), plus the civil penalties (minimum penalty amount of $5,500 multiplied by 61 claims =$335,500), minus the amount paid in restitution ($8,970.71). Thus, the court found that Christeson must pay the government $353,441.42 under the FCA. Given that the amount calculated was approximately thirty-nine times the actual damages suffered by the USPS, the court performed an Excessive Fines Clause analysis. The court found that the judgment was not excessive, nor grossly disproportional because (1) the intentional fraud lasted for multiple years (2) the judgment sought is the minimum within statutory limits, and (3) each of Christeson’s sixty-one violations was an independent instance of intentional misconduct.

This case illustrates that the damages provisions of the False Claims Act can be onerous. It also serves as an example that it never pays to cheat the post office.

Public Disclosure Bar Does Not Preclude a Qui Tam Suit against Medtronic

June 14th, 2018 by Elisa Boody

In United States ex rel. Forney v. Medtronic, Inc., Judge Edward G. Smith of the United States District Court for the Eastern District of Pennsylvania ruled in favor of the Relator by denying medical device manufacturer, Medtronic’s request for summary judgment.  Judge Smith ruled that Relator Forney was not barred by the public disclosure bar because she is an original source that “materially added” to the publically disclosed allegations of fraud against Medtronic.

The Underlying Fraud Allegations

Relator Forney worked at Medtronic for 16 years until she was terminated in 2012.  She alleges that Medtronic routinely provided free services to individuals who made decisions about device purchases for the purposes of inducing these healthcare professionals to purchase Medtronic devices.  Her amended complaint alleges two main categories of inducements: (1) free device checks and device examinations performed on implanted pacemakers and (2) free practice management consulting during which providers were counseled on how to code for maximum reimbursements.  Relator Forney argues that these services are illegal kickbacks.

Medtronic Claims Public Disclosure Bar

In their motion for summary judgment, Medtronic contended that all of the Relator’s allegations were the subject of prior FCA claims and were therefor barred by the public disclosure bar.  Medtronic pointed to five different qui tam cases (Onwezen, Schroeder, Stokes, Doe, and Burns) and argued that they all qualified as valid prior public disclosures that described substantially the same fraud as the Relator’s amended complaint.

The Court’s Findings

After reviewing the five cases, the Court found that only two of them were valid public disclosures.  The Court determined that the other three cases did not qualify because these cases did not satisfy the government-involvement requirement.   According to Judge Smith, when the government declines to intervene in a qui tam case, it cannot be a party for the purposes of the government-involvement requirement.  Next, the Court turned to the issue of whether the two valid prior public disclosures (Onwezen and Schroeder) served as a bar to the relator’s claims.

The court held that while Relator Forney’s allegations were substantially similar to the other cases, she had knowledge that was independent of the disclosures, making her an original source.  The court found that she provided extensive details to the government that materially added to the factual background possessed by the government from the two prior cases.  Accordingly, the Court denied Medtronic’s motion to dismiss.

New York Doctor Sentenced to Four Years in $100 Million Lab Kickback Scheme

June 1st, 2018 by Pamela Brecht

The beat goes on…

According to a May 31, 2018 filing in New Jersey federal court, Dr. Thomas Savino of Staten Island was sentenced to four years imprisonment and three years’ supervised release, and was ordered to pay a $100,000 fine and forfeit $27,500 for his part in the Biodiagnostic Laboratory Services fraud. Evidence produced at trial last fall showed that Dr. Savino received at least $25,000 from the lab in exchange for his referrals, which generated approximately $375,000 for the lab. In October 2017, Savino was convicted of multiple offenses for his role in the kickback scheme, including conspiracy to violate the anti-kickback statute and wire fraud. All told, the scheme resulted in $100 million in false claims to government and private health care programs.

With Dr. Savino’s conviction and sentencing, the case has resulted in 53 convictions, including 38 doctors. Earlier this month, four former Biodiagnostic sales employees also received prison sentences ranging from 21 to 41 months, and a fifth ex-employee received three-years’ probation for their part in the kickback scheme.

Back in June of 2016, Biodiagnostic pled guilty and was required to forfeit its assets. In December 2017, the founder of the lab company, a former nurse, testified during the government’s prosecution. He described how he built a $150 million business from scratch using a marketing plan built primarily on bribing doctors to use his lab. The physicians involved were bribed with luxury automobiles, impossible-to-get concert tickets, and trips to the Caribbean and the Super Bowl in private jets, as well as prostitutes and strippers at high-end gentlemen’s clubs. Although 40 physicians were charged, the lab owner testified that he paid off more than 100 physicians to keep referrals flowing to his lab.

The scheme came to light when one of the doctors receiving kickbacks gave an old iphone to a girlfriend. After their breakup, she discovered texts revealing the bribe scheme and provided them to authorities.

Ex-BlueWave Execs and Former HDL CEO Hammered with $111 Million Judgment

May 30th, 2018 by Douglas Roberts

What Happened?

On May 23, 2018, the U.S. District Court for the District of South Carolina, Judge Richard M. Gergel, imposed a $111 million judgment against former Health Diagnostics Laboratory (“HDL”) CEO, Latonya Mallory, and former BlueWave Healthcare Consultants (“BlueWave”) owners, Floyd Dent III and Robert Bradford Johnson. Mallory, Dent, and Johnson, who had been found liable by a jury in January for violations of the False Claims Act (“FCA”), argued that the judgment amounts to a violation of the Due Process Clause and the Eight Amendment’s prohibition on excessive fines. The court rejected these arguments.

The Litigation Rundown

An amended qui tam Complaint filed by Relators Scarlett Lutz and Kayla Webster initially named Dent, Johnson, and Mallory as co-conspirators in a nationwide scheme where BlueWave would “market” laboratory tests performed by HDL and another lab, Singulex, Inc., to physicians by offering them sham process and handling fees for each test ordered. The realtors were represented by Marc S. Raspanti, Pamela C. Brecht, and Douglas E. Roberts of Pietragallo Gordon Alfano Bosick & Raspanti; and William J. Tuck, P.A.

The United States intervened in the Lutz-Webster Complaint, and two complaints filed by other relators, and the claims against Dent, Johnson, and Mallory proceeded to trial in Charleston, South Carolina, after HDL and Singulex settled the claims against them. After intervention and at the government’s request, the Court froze numerous assets – including real property and bank accounts – belonging to Dent and Johnson.

On January 31, 2018, the jury found Dent, Johnson, and Mallory responsible for submitting or causing to be submitted 35,074 false claims that were tainted by the sham fees and for which federal health care programs paid $16,601,591. Because the FCA calls for the trebling of damages as well as the imposition of penalties for each claim submitted, and because the government sought civil penalties for some of the false claims, Dent, Johnson, and Mallory’s obligation climbed into nine figures.

Faced with a massive financial obligation, Dent, Johnson, and Mallory contended that the judgment would violate the Excessive Fines Clause of the Eighth Amendment. Following “well-settled” precedent, the district court rejected that argument in a written opinion and order, noting that punitive damages and penalties are not typically viewed as “fines,” as that term is used in the Eighth Amendment. Moreover, even if the Excessive Fines Clause were applicable to civil FCA judgments, “substantial deference” should be afforded to the legislature, which prescribes penalties for each false claim submitted. Here, the United States was circumspect in terms of the penalties it sought, opting to request the minimum $5000 per claim and only then for some of the false claims submitted. Thus, there was nothing grossly disproportionate about the judgment.

Dent, Johnson, and Mallory also raised due process objections under the Fifth Amendment based on the alleged excessiveness of the judgment. But the Court found that the statutorily determined ratio of punitive damages to compensatory damages passed constitutional muster. The Court imposed the $111 million judgment, for which Dent, Johnson, and Mallory will be jointly and severally liable.

The Take Away

This judgment serves as a stark reminder about the severity of consequences facing those defendants who go to trial and are found liable for FCA violations. Johnson, Dent, and Mallory were found responsible for submitting, or causing the submission of, false claims that cost the government $16 million. That obligation ballooned into more than $111 million due to the FCA’s provisions regarding treble damages and fines and penalties.

It Is So Ordered: Improper Attempts to Assert Attorney-Client Privilege Will Not Be Tolerated

May 29th, 2018 by Qui Tam

On May 21, 2018, Judge Lawrence F. Stengel of the US District Court for the Eastern District of Pennsylvania granted Relator Gohil’s motion to compel calling for the production of hundreds of attorney-client privilege-asserted documents in a False Claims Act dispute.

In the underlying case, United States of America ex rel. Yoash Gohil v. Aventis Pharmaceuticals, Inc.,et al., Gohil, a Senior Oncology Sales Specialist at Aventis (now Sanofi), filed a qui tam action against his former employer, Sanofi-Aventis U.S., Inc. and its subsidiaries. Gohil alleged Sanofi illegally advertised its chemotherapy drug Taxotere for unapproved or off-label uses and paid kickbacks to doctors who prescribed such uses. The former employee alleged that these practices caused health care providers to submit false claims under the False Claims Act. As a result of Aventis’s unlawful marketing practice, Gohil alleged, Taxotere’s revenues increased from $424 million to $1.4 billion from 2000 to 2004.

Sanofi argued Gohil’s claims were barred by the six-year statute of limitations and were precluded by the First Amendment because free speech extends to commercial speech, including untruthful speech regarding Taxotere. Judge Stengel denied the motion finding Sanofi had fair notice of the claims, and there was not enough information to decide the First Amendment issue.

Fast-forwarding to discovery, in Gohil’s motion to compel discovery responses, Gohil argued Sanofi improperly attempted to claim privilege by broadly categorizing communications with third parties such as marketing firms, employees, or emails with attorneys merely copied to assert privilege, as “consultants involved in giving of legal advice.” Judge Stengel rejected Sanofi’s argument and ordered the defendant to hand over the documents.

The Court’s order directs Sanofi to turn over “all documents related to the PACT program,” a program offering aid for treatment payment to qualified individuals. The Court’s order includes documents maintained by third-party vendors, databases, documents related to contract negotiation, documents related to the destruction of any PACT documents, and documents related to PACT reimbursement managers.

Ultimately, attorney-client privilege will only shield from discovery those communications and documents related to obtaining legal advice. The Court found any attempt to conceal pertinent documents by asserting unfounded attorney-client privilege will not be tolerated.

FCA Suit Stealer Gets Guideline Sentence

March 19th, 2018 by Qui Tam

What Happened?

Jeffrey Wertkin, a former Akin Gump Strauss Hauer & Feld LLP partner who previously had worked at the Department of Justice (“DOJ”), received 30 months’ imprisonment for offenses related to his theft and attempted sale of a sealed government whistleblower complaint to a cyber-security company being investigated by the DOJ. The sentence was at the low end of Wertkin’s 30-37-month range under the U.S. Sentencing Guidelines and far more than the year-and-a-day sentence that his attorney had requested.

The Rundown

In November 2017, Wertkin pleaded guilty in the U.S. District Court for the Northern District of California to two counts of obstruction of justice, in violation of 18 U.S.C. § 1505; and one count of interstate transportation of stolen goods, in violation of 18 U.S.C. § 2314.  As he transitioned from his role as a civil prosecutor at the DOJ to Akin Gump’s Washington D.C. office, Wertkin stole approximately 40 sealed complaints. In November 2016, he cold-called general counsel at a Silicon Valley company and left a voicemail offering to provide information about a complaint that implicated the company for a fee.  The general counsel called the FBI, and, after a series of monitored phone calls with the general counsel, Wertkin – dressed in a wig and sunglasses – was arrested in a Sunnyvale, California hotel, at which he intended to exchange the complaint for more than $300,000 in cash.

In a lengthy and well-crafted sentencing memorandum, Wertkin’s counsel, Cristina Arguedas of Arguenda Cassman & Headley LLP focused on his undiagnosed anxiety and depression, the personal struggles caused by a taxing career, the aberrant nature of his misconduct, and the steps he had taken towards rehabilitation, including his cooperation and his embrace of mental health treatment. Arguedas submitted 85 character letters on Wertkin’s behalf.

In its filing, the government, which requested a mid-guidelines sentence of 34 months, focused its attention on Wertkin’s position of public trust when he stole the complaints and the continuing nature of his course of conduct. At the sentencing hearing, the government keyed in on the number of potential victims, noting that, after being charged, Wertkin had staged his office at Akin Gump to make it look as though the complaints had been mailed to him by the DOJ.  That act of obstruction initiated an investigation into blameless DOJ attorneys.

The Take Away

Though crediting Wertkin’s struggles with mental health issues and his significant support from the community, the Court fashioned a guidelines sentence. Among other factors, the need for general deterrence weighed heavily on the Court. While Wertkin, who had forfeited his law license, would never engage in this kind of activity again, the Court had to send a message that these matters are taken seriously.

A Simple Fix to Preserve the Status Quo in Light of Escobar

March 9th, 2018 by Qui Tam

The Supreme Court’s ruling in Escobar creates a new tension between CMS’s historical “pay and chase” framework and the idea that when the government continues to pay claims when it has information regarding potential fraud, the conduct involved is not material to the payment decision. Admittedly, it would be premature to commence administrative proceedings to debar providers at the inception of an investigation. However, we humbly suggest a relatively simple and straightforward solution that allows both sides (CMS and providers) to maintain the status quo during an investigation.

When facts are brought to light that, if supported, may be material to CMS’s decision to pay, the agency should issue a notice to the entity submitting the claims:

This communication is notice to your organization that we are in possession of information regarding conduct which, if established, may be material to the decision to reimburse your organization and other individuals or organizations impacted by these reimbursement decisions for claims submitted by you or on your behalf. You are on notice that past and future claims for reimbursement are impacted by this information. This notice also applies to any entities contributing to the claims for reimbursement submitted by you or on your behalf to CMS.

Ten Questions That Should be on Every Health Care Lawyer’s Radar in 2018

February 15th, 2018 by Qui Tam

1. How far will the Supreme Court’s materiality ruling in Escobar extend?

2. Will there be any type of legislative “fix” to the Escobar ruling, and its growing progeny, being decided by scores of federal courts?

3. Will CMS more aggressively scrutinize provider submitted claims to avoid the gutting of multiple fraud investigations based on Escobar? If so, how will CMS accomplish this task?

4. Does the Department of Justice’s guidance issued on January 10, 2018, portend its future view of Escobar?

5. How will the intense mergers and acquisitions of health care providers “shake out” in the wake of the erosion and possible demise of the Affordable Care Act?

6. Will due diligence take on a new dimension in light of breakneck health care consolidation?

7. Will corporate health care compliance efforts keep up with a rapidly changing health care landscape, which includes for-profit entities, non-profit entities, and public agencies – many of which are consolidating?

8. What is the scope and appetite of State Attorneys General for robust health care investigations?

9. Will kickback investigations increase in light of the Escobar ruling?

10. Will Congress finally fix the massive Medicare Part D Prescription Drug Program to allow the United States government to negotiate the best possible prices for all Medicare beneficiaries?