Archive for May, 2011

Leading Private Ambulance Company to Pay $2.7 Million to Settle False Claims Act Suit

Tuesday, May 31st, 2011

American Medical Response (“AMR”), one of the country’s largest private ambulance services, will pay the United States government $2.7 million to resolve allegations that it defrauded Medicare and other federal health insurance programs.

The allegations against AMR were originally brought by several former employees, who alleged that AMR coded “basic life support” calls as “advanced life support,” which are reimbursed at a higher rate by Medicare.  The U.S. intervened in the case, which was investigated by the U.S. Attorney’s Offices in Brooklyn and Long Island.  The AMR settlement applies to its subsidiaries, Park Ambulance Service, Five Counties Ambulance Service, and Associated Ambulance Service.

For more information see: Ambulance company to pay $2.7M to settle fraud allegations

Diagnostic Sleep Companies to Pay $650,000 to Settle False Claims Act Suit

Tuesday, May 31st, 2011

Three related companies, Areté Sleep LLC, Areté Sleep Therapy LLC and Areté Holdings LLC, have agreed to pay the United States Department of Justice $650,000 to settle claims that the Areté companies defrauded Medicare in violation of the False Claims Act.  The settlement resolves claims that Areté submitted false claims to Medicare for diagnostic sleep tests performed by technicians lacking the licenses or certifications required by Medicare’s rules and regulations.  The settlement also resolves connected allegations that Areté submitted false claims for medical devices that were prescribed as a result of the technicians’ sleep tests.

Areté, which filed for bankruptcy in January 2011, agreed that the $650,000 settlement will be paid out of the sale of its assets under the supervision of the bankruptcy court.  Relator Amanda Drews, who blew the whistle on Areté’s fraud, will receive $107,250 as her share of the settlement for her efforts in uncovering the false claims to Medicare.

For more information see: USDOJ: Arete

U.S. District Court in Tennessee Awards Government in Excess of $82 Million in FCA Suit Regarding Medicare Fraud

Tuesday, May 31st, 2011

On May 26, 2011, Judge William J. Haynes, Jr. awarded the United States $82,642,592.00 in damages after granting summary judgment in favor of the government on its False Claims Act (“FCA”) claim against Fresenius Medical Care Holdings, Inc.  The award was based on treble damages under the FCA of $38,873,592 and $43,769,000 in civil penalties.

The government’s claim stemmed from the alter ego relationship between two of Fresenius’s predecessors in interest, the Renal Care Group (“RCG”) and RCG Supply Company (“RCGSC”).  The Court found that RCG in fact created, controlled and operated RCGSC, which rendered the latter ineligible to receive higher payments from Medicare for the sale of certain dialysis supplies under an express Medicare statute.  Despite this statutory ineligibility, RCG and RCGSC submitted claims for the higher payments, and received them, from 1999 through 2004.  In discovery, RCG and RCGSC admitted that, as a result of these higher payments, they received $12,957,864 more than they should have under the Medicare statute.  That difference formed the basis of the Court’s treble damage award.

RCG and RCGSC also admitted that, during the five-year period for which they submitted inflated claims to Medicare, such claims were submitted on behalf of at least 3,979 individual patients.  The FCA provides for statutory damages of up to $11,000 for each false claim submitted to the government.  Judge Haynes held that, since Medicare reimburses providers for services provided to individual, eligible beneficiaries, the Defendants submitted a “false claim” for purposes of statutory damages under the FCA for each of the 3,979 patients for whom reimbursement was sought, even if multiple patients were aggregated in any given request for reimbursement from the Defendants to Medicare.

For more information see:

Securities and Exchange Commission Approves New Rules Providing Big Rewards to Financial Fraud Whistleblowers

Tuesday, May 31st, 2011

The U.S. Securities and Exchange Commission approved rules on May 25, 2011 that could make it very lucrative for Wall Street and other corporate insiders to alert the agency to securities fraud.  Under the new rules, whistleblowers will be entitled to receive 10 to 30 percent of the money they help the S.E.C. collect through enforcement actions. 

Business groups, including the U.S. Chamber of Commerce, had lobbied strenuously for rules that would impose constraints on whistleblowers, but the S.E.C. rejected suggestions that whistleblowers be required to inform the company being accused and allow it to address the allegations internally.

“For an agency with limited resources like the S.E.C., I believe it is critical to be able to leverage the resources of people who may have first-hand information about potential violations,” S.E.C. Chairwoman Mary Schapiro said.  Schapiro, an independent, and the S.E.C.’s two Democratic Commissioners, voted for the new rules over the objections of the S.E.C.’s two Republican Commissioners.

Whistleblower tips have already proven valuable to the S.E.C.  Enforcement official Stephen Cohen noted that one whistleblower recently provided a road map to an alleged fraud that saved the agency six to twelve months of investigative work, and revealed wrongdoing that the agency might not have otherwise detected. 

If the new whistleblower rules operate as planned, individual investors should reap the benefit of not only additional detection, but deterrence as well.  “Knowing that whistleblowers are being encouraged to dime them out will make the next Madoff think twice and three times before they go down a bad path,” attorney Dean Zerbe said.

For more information see:

California to Intervene in False Claims Act Suit Targeting Educational Aid Fraud

Tuesday, May 31st, 2011

In a recently-unsealed filing, California became the second state to join in a False Claims Act whistleblower lawsuit originally brought in 2007 against Education Management Corporation (“EMC”), a for-profit college company that operates 14 campuses in California under the “Argosy University” and “Art Institute” brands.

 The suit, which was brought by two former employees, alleges that EMC illegally paid admissions employees based upon the number of students they recruited.  The Higher Education Act prohibits colleges and universities that participate in the federal financial aid program from paying commissions, bonuses or other incentive payments to recruiters based directly or indirectly on their success in securing enrollments.  According to the lawsuit, most of the public funding received by EMC was fraudulently obtained, meaning that a significant amount could be at stake.  The Complaint against EMC alleges that, in 2010 alone, the company received $2.2 billion in federal financial aid alone.

The revelation regarding California’s intention to intervene in the case comes on the heels of the United States Department of Justice’s announcement at the beginning of May that it, too, would be intervening in the case.  The federal government’s Complaint in intervention is due to be filed June 2, 2011.  The state of Illinois had previously intervened in the case.

For more information see:

California AG’s Mortgage Fraud Strike Force to Use State False Claims Act

Tuesday, May 31st, 2011

In a speech delivered on Monday, May 24, 2011, California Attorney General Kamala Harris promised that her newly-formed Mortgage Fraud Strike Force would employ the state’s “robust” False Claims Act to hold those who commit mortgage fraud accountable.

“We are prepared to use it in a way that will look at all those who have made false statements or misled investors of any nature – be they individuals, institutions or municipalities,” Harris announced at a news conference held in Los Angeles.  She further stated that the Strike Force will “work to safeguard the homeowner at every step of the process – from origination of a loan to its securitization.” 

 Attorney General Harris’s announcement marks the beginning of a new frontier in False Claims Act litigation nationwide.  California has been hard-hit by the financial and housing crises, with foreclosure filings against 500,000 homes state-wide last year alone, and its employment of the state False Claims Act to combat mortgage fraud could prove to be a model in other jurisdictions with similar concerns.

For more information see:

E.D.N.Y.: Medical Providers May Not Seek Contribution or Indemnity for Billing Fraud

Friday, May 27th, 2011

On May 13, 2011, in a case of apparent first impression, Judge John Gleeson of the United States District Court for the Eastern District of New York held that medical services defendants may not implead their billing company where the Government, after intervening in a False Claims Act suit, asserts claims for unjust enrichment and payment by mistake.

At issue in U.S. ex rel. Ryan v. Staten Island University Hospital, et al. was the motion of Regency Alliance Services, Inc. (“Regency”) and Physicians Medical Group (“PMG”) to dismiss the Third Party Complaint filed by Dr. Gilbert Lederman, and his professional corporation, Gilbert Lederman, M.D., P.C.  The Government’s underlying Compliant alleged that Dr. Lederman and Lederman P.C. (the Lederman Parties), among others, submitted hundreds of false and fraudulent claims to Medicare for stereotactic radiosurgery treatments that were not legitimately covered by the Medicare program.  Based on this allegedly fraudulent activity, the Government alleged claims under the False Claims Act, as well as the claims for unjust enrichment and payment by mistake. 

The Lederman Parties’ Third Party Complaint alleged that Regency and PMG, who the Lederman Parties claimed served as medical billing and coding experts for Lederman P.C., were liable under theories of both contribution and indemnification for any damages suffered by the Government as a result of the false claims submitted to Medicare.

Judge Gleeson disagreed, and granted Regency’s and PMG’s motions to dismiss.  With respect to the contribution claim, Judge Gleeson conducted an exhaustive review of New York law and concluded that the right of contribution, which is governed by N.Y. CPLR § 1401, does not exist unless the underlying claim sounds in tort law, and where both the third party plaintiff and third party defendant owed a duty to the injured party.  Judge Gleeson reasoned that, because claims for unjust enrichment and payment by mistake are not tort claims, but rather equitable claims that do not require the breach of a preexisting duty, no right of contribution exists.

The Lederman Parties’ claim for indemnification was also dismissed, based on similar reasoning.  Indemnity exists to prevent unjust enrichment through the inequitable allocation of the burden for making a plaintiff whole for a given loss.  Given the equitable nature of the Government’s claims, however, no such burden would be apportioned to Dr. Lederman or to Lederman P.C. without the Court first determining that it was equitable to do so.  Accordingly, the Lederman Parties’ claim for indemnity was wholly redundant of one of their defenses to the Government’s claim.  Stated somewhat differently, if the Lederman Parties were held liable for unjust enrichment or payment by mistake, any subsequent claim for indemnification would necessarily fail, because the Court would have already determined that it was equitable and just to impose the burden for the loss on the Lederman Parties. 

This holding, if followed in other jurisdictions, should benefit relators and the Government by streamlining qui tam cases involving state law equitable and quasi-contract claims such as unjust enrichment, money had and received, and payment by mistake.

SEC Adopts Final Regulations for Whistleblower Program

Wednesday, May 25th, 2011

With great anticipation, the SEC adopted its final regulations governing the new whistleblower program under the Dodd-Frank financial reform legislation.  Most significantly, the SEC did away with a proposed requirement that whistleblowers first report wrongdoing internally before reporting to the SEC, despite strong opposition from corporate lobbyists.  The SEC did provide enhanced remedies for whistleblowers that decide to first report internally by reaffirming that such whistleblowers will still be eligible for an award, and by giving the whistleblower 120 days to report to the SEC if the company doesn’t do so.  The employee would receive whistleblower status from the date of internal reporting so as to maintain their place in line in case of successive reporting of the same conduct.  The SEC also provided that cooperation with a company’s internal compliance program would be a factor in determining whether to increase a whistleblower’s award. 

The SEC broadened the type of information that may qualify for an award by making a whistleblower eligible for an award if the information provided reopens a closed investigation or opens a new line of inquiry in an existing investigation.  The SEC clarified those individuals who would not be eligible to participate in an award including

  • individuals with a pre-existing legal or contractual duty to report their information to the SEC
  • attorneys who attempt to use information obtained from client engagements to make whistleblower claims for themselves
  • individuals who obtain information that a court deems in violation of law
  • foreign government officials
  • officers, directors or partners of an entity who learn about securities violations through third-persons or who learn the information in connection with the entity’s process for identifying and reporting potential violations
  • compliance and internal audit personnel
  • public accountants working on SEC engagements 

The SEC also announced that it has completed initial staffing of the Office of the Whistleblower and that the Investor protection Fund from which awards will be paid, is fully funded.

Allegheny County Surfs the False Claims Wave

Friday, May 20th, 2011

Allegheny County, Pennsylvania became  the first  municipal government in Pennsylvania and the fourth nationwide to adopt a false claims act.  The new ordinance, based generally on the Federal False Claims Act allows a private individual to file a complaint for false claims after the county Solicitor has investigated the allegations of the complaint and declined to intervene.  If the solicitor decides to intervene, then the solicitor is responsible for conducting the litigation.  The ordinance allows for treble damages plus attorney fees and costs for any violations.  If the County elects to pursue the claim, then the relator’s share of any award is to be between 10 percent and 25 percent  of the recovery.  If the relator brings suit, then the relator award is to be between 15 percent and 30 percent of the total award.  The ordinance also includes anti-retaliation remedies. 

For more information see:

Mortgage Firms Accused of Defrauding Taxpayers

Friday, May 20th, 2011

According to a report in the Huffington Post, recent confidential federal audits accuse the nation’s five largest mortgage companies of defrauding taxpayers in their handling of foreclosures on homes purchased with government-backed loans.  Five separate investigations conducted by the Department of Housing and Urban Development’s inspector general examined Bank of America, JP Morgan Chase, Wells Fargo, Citigroup and Ally Financial.  Collectively, these mortgage firms service 3 of every 5 home loans in the country. 

The audits conclude that the banks presented the Federal Housing Administration with false claims by filing for federal reimbursement on foreclosed homes that sold for less than the outstanding loan balance using defective and faulty documents, according to the Huffington Post.  Federal and state employees plan to use the results of these audits in negotiations with the five lenders to settle allegations of illegal foreclosures and other shoddy practices.  Some seek payment to create a fund of $5 billion to help distressed borrowers and settle the allegations.  Others seek a fund of as much as $30 billion, with additional costs to be incurred for improving the banks’ internal operations and modifying troubled borrowers’ home loans.

For more information see: