Archive for September, 2012

Record Breaking Medi-Cal Settlement Result Of FCA Investigation

Monday, September 24th, 2012

In the largest settlement in Medi-Cal history, SCAN, a provider of health care and support services in Southern California for the elderly and disabled, will pay $323.67 million to settle allegations that they failed to provide contractually required financials to the Department of Healthcare Services (“DHCS”).  By failing to turn over the financials, SCAN impaired DHCS from revising capitation rates for SCAN. $3.82 million will go towards the Medicare portion of the allegations, which were brought by a former SCAN employee, James M. Swoben in July 2009 under the state and federal False Claims Acts.  Mr. Swoben will receive a portion of the $3.82 million.  The federal government will receive $129.38 million and the state will receive $190.47 million to resolve the Medi-Cal allegations.

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Another Settlement For HCA

Monday, September 24th, 2012

HCA, one of the largest for-profit hospital chains nationwide, has agreed to pay the United States and the state of Tennessee $16.5 million to settle allegations arising from its Parkridge Medical Center facility in Chattanooga.  A financial arrangement between Parkridge Medical Center and physician group Diagnostic Associates of Chattanooga triggered the allegations that Parkridge violated the False Claims Act and the Stark Statute.  It is alleged that Parkridge made rental payments for office space leased from Diagnostic at a rate well above fair market value.  Additionally, Parkridge allegedly released certain members from separate lease obligations.  All of this was done in an attempt to induce the physician members to refer patient to HCA facilities.

While no determination of liability has been made, in addition to the monetary settlement Parkridge has agreed to enter into a five year Corporate Integrity Agreement with the government.  The Relator, Bingham, who initially brought the allegations to the government’s attention will receive an 18.5% share of the settlement.  The federal portion of the recovery represents $15.693 million of the $16.5 million total settlement.

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Prison Sentence For Physician Assistant In Fraud Scheme

Monday, September 24th, 2012

A Los Angeles area physician assistant, David James Garrison, has been sentenced to 72 months in prison followed by three years of supervised release for stealing the identity of physicians to prescribe medically unnecessary prescriptions for durable medical equipment (“DME”) and diagnostic tests.  He has also been ordered to pay $24,935 in restitution.  Garrison was arrested for his part in an elaborate scheme that included fraudulent clinics that trafficked in prescription orders for DME and diagnostic tests that were in turn used by fraudulent DME suppliers and medical testing facilities.

From approximately March 2007 through September 2008, Garrison’s co-conspirator Edward Aslanyan participated in an $18.5 million scheme to use street level recruiters to find Medicare beneficiaries who were willing to exchange their Medicare billing information for free high-end power wheelchairs and other equipment.  Aslanyan, in turn, paid kickbacks to the recruiters for every “patient” they brought in.  Aslanyan would sell the prescriptions fraudulently written by Garrison to DME companies for $1,000-$1,500.  The DME company would in turn buy wheelchairs wholesale for $900 but would bill Medicare approximately $5,000 for each wheelchair.

Garrison would also order sleep studies, ultra-sounds, and nerve conduction therapy which were billed to Medicare by fraudulent testing companies who paid Aslanyan kickbacks to operate from his fraudulent medical clinics.  Garrison was paid up to $10,000 a week for his part in the fraudulent scheme.

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Fraudulent School Lunch Scheme Results In $18 Million Settlement

Monday, September 24th, 2012

The New York Attorney General announced an $18 million settlement with Compass Group USA, Inc., a food management services provider, for overcharging 39 schools and school districts across the state.  In addition to the monetary settlement, Compass entered into a first ever Nutritional Code of Conduct to ensure better quality food in schools.  It is alleged that from 2003 through 2010, Compass failed to pass along to the schools rebates it received from food vendors as required by law and thereby overcharging the schools.  $3 million of the settlement will be returned to the schools and the remaining $15 million will benefit New York state taxpayers.

As part of the groundbreaking Nutritional Code of Conduct, Compass will be required to comply with the nutritional standards in the Healthy, Hunger-free Kids Act passed by Congress in January 2012.  Compass will also be required to provide written disclosures to their school clients for the next two years explaining their rebating practice and notifying them of an independent auditor’s review of their account.  Compass will also create a rebate specific hotline and will submit semi-annual independent auditor’s reports of their rebate practice to the Attorney General for at least the next two years.  Lastly, Compass will be required to provide the Attorney General with semi-annual written reports of their progress on compliance with the Nutritional Code of Conduct.  The allegations arose from an industry wide investigation by the Taxpayer Protection Bureau into food distributors contracting with the state.

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Prisoner Becomes Millionaire: IRS Whistleblower Awarded $104 Million

Tuesday, September 18th, 2012

Relator Bradley Birkenfeld will receive a $104 million award, for his part in revealing UBS Bank’s illegal offshore banking scheme.  It is believed to be the largest award to an individual Relator and the first major award under the IRS Whistleblower Act.  Birkenfeld will have to settle for online shopping for the time being as he is currently finishing out his felony sentence for his part in the scheme, including smuggling diamonds in a toothpaste tube, at home.

The IRS applauded Mr. Birkenfeld for identifying taxpayer behavior that they were otherwise unable to detect and described the information he provided as comprehensive in both its breadth and depth.  As a result of the investigation kicked off by Mr. Birkenfeld’s Complaint, UBS paid a $780,000,000 fine, 35,000 taxpayers voluntarily repatriated illegal accounts under an amnesty program, and recovered $5 billion in back taxes.  Additionally, the Swiss were forced to change their tax treaty with the United States resulting in them turning over the names of 4,900 taxpayers’ who are now under investigation for their illegal accounts.

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Cornell Loses Appeal

Tuesday, September 18th, 2012

Cornell University has lost its appeal of a 2010 verdict that was the result of a whistleblower lawsuit brought by a former research fellow.  The lawsuit alleges that Weil Cornell Medical College and former faculty member Dr. Wilfred van Gorp made false claims to the National Institute of Health (“NIH”) regarding a government funded research grant.  The grant was intended to train post-doctoral fellows in child and adult clinical research in neuropsychology with a strong emphasis on research training with HIV/AIDS. Relator Daniel Feldman alleged in his Complaint that of 165 patients who participated in the research only three were HIV positive.  Various fellows also testified that very little of their research involved HIV or AIDS at all.

Cornell appealed the jury’s 2010 ruling on the grounds that they erred in calculating damages; that there was no evidence to conclude that the false statements made by Cornell had influenced NIH’s decision to award them the grant; and that the trial court erred in excluding NIH’s inaction towards Relator Feldman’s initial complaint.  In ruling against Cornell, a jury found that the school had made false statements on the grant renewal application in the third, fourth and fifth years.  As a result, Cornell was fined $855,714 plus $32,000 in statutory damages.  Relator Feldman was awarded $602,898 in attorney’s fees, $25,862 in costs and $3,121 in expenses. He also stands to gain a portion of the fine imposed on Cornell.

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Orthofix Back To The Drawing Board As Judge Rejects Settlement

Tuesday, September 18th, 2012

Orthofix’s proposed $7.8 million settlement in a Medicare kickback investigation has been rejected by U.S. District Judge William G. Young.  Orthofix had proposed pleading guilty to one count of obstructing a government audit and paying a $7.8 million fine.  In rejecting the settlement, Judge Young stated that he had unease in treating a corporate criminal case as a civil case and that the settlement unduly restricted his sentencing power.  A $34.2 million settlement that Orthofix had proposed to resolve False Claim Act allegations that the company paid kickbacks to doctors who used their bone growth stimulator is now in jeopardy.

Five employees of Orthofix have already pled guilty to criminal charges arising from the whistleblower investigation kicked off by Relator Jeffrey Bierman’s allegations.  One high ranking Orthofix employee, Thomas Guerrieri, Vice President, pled guilty to creating fake consulting agreements for physicians.  One physicians’ assistant in Rhode Island pled guilty to receiving approximately $120,000 in kickbacks from Orthofix.  He was sentenced to six months in prison and six months of home confinement and paid $13,000 in fines.

The government also alleges that Orthofix waived patient co-pays for the bone growth stimulator, which misstated the true cost of the product and generated a Medicare overpayment.  Orthofix is also accused of submitting claims that patients needed to purchase the devices rather than rent them.  Relator Bierman, who provides billing services to physicians and hospitals, was to receive $9.2 million of the proposed $34.2 million settlement.

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United States Files Statement Of Interest In Major Medicare Part D FCA Case

Thursday, September 13th, 2012

On September 10, 2012, the United States filed a strong Statement of Interest in one of the first and largest suits involving fraud against the Medicare Part D Prescription Drug program (“Part D”), U.S. ex rel. Spay v. CVS-Caremark Corp, 2:09-cv-04672-RB (E.D. Pa) (Doc. No. 73).  This statement, which describes the position of the U.S. with regard to the application of the federal False Claims Act (“FCA”) to the Part D program, will have major implications not only for the outcome of this case and future whistleblower cases, but also for the integrity of the Part D program as a whole.

Background of Case and Part D Program

The Medicare Part D program was established in 2006 to subsidize the cost of prescription drugs for eligible Medicare beneficiaries.  The Part D program relies on private contractors called Part D Sponsors to provide prescription drugs to Medicare beneficiaries and then submit claims to the Center for Medicare and Medicaid Services (“CMS”) for the cost of these services.  CMS pays the Part D Sponsors based on their estimated cost of providing Part D benefits to beneficiaries in a particular area and then reconciles the Part D Sponsor’s actual cost of providing Part D Services at the end of the year.  It accomplishes this reconciliation by requiring the Part D Sponsor to submit actual cost information to CMS in the form of Prescription Drug Event (“PDE”) data.  PDE data is electronic data that is submitted to CMS for each prescription that is filled for a Part D Sponsor’s members.  CMS requires the submitting Part D Sponsor or contracting entity to certify to the accuracy, completeness, and truthfulness of the PDE data it submits.  

This case arose from a qui tam suit filed under the FCA by Anthony Spay, a former pharmacist whose company was hired to audit the Part D claims processed by Caremark on behalf of Medical Card System (“MCS”), a Puerto Rican health insurance company.  In 2007, CVS merged with Caremark and together, the CVS Caremark Defendants have served as a Part D Sponsor, pharmacy benefit manager (“PBM”), and retail pharmacy in the Part D program.  In the course of his company’s audit, Spay alleged that he found that Caremark was improperly adjudicating and submitting PDE claims for prescriptions that were not allowed under the Part D Program.  Specifically, Spay alleged that Caremark improperly dispensed gender-specific drugs to the opposite gender, failed to apply “maximum allowable cost” pricing to prescription drugs, billed for drugs with expired and obsolete National Drug Code identifiers, billed for prescriptions that contained false physician identifiers, dispensed prescription drugs without prior authorization, and billed for quantities of supplies of drugs that exceeded approved limits.  Spay also alleged that he learned in the course of his audit, that these practices were part of the CVS Caremark Defendants’ nationwide practice.

In 2009, Spay filed a whistleblower suit under seal on behalf of the Government alleging that the CVS Caremark Defendants’ engaged in a nationwide scheme to defraud the Part D program through the submission of false PDE data to CMS, which caused CMS to  make payments under the Part D program.  The seal was lifted on Relator Spay’s lawsuit in 2012, with the U.S. declining to join the suit.  After the CVS Caremark Defendants’ filed their motion to dismiss on April 23, 2012, the U.S. filed its Statement of Interest pursuant to its authority under 28 U.S.C. § 517, to respond to several of Defendant’s arguments and protect the interests of the U.S.

Statement of Interest

Government’s Intervention Decision

First, the U.S. rejected the CVS Caremark Defendants’ assertion that the Government’s decision not to intervene in the case was indicative of the case’s lack of merit. The U.S. stated that its decision not to intervene in an FCA action is based on a number of factors, including questions of resource allocation, and does not necessarily signal its disinterest in the action.  The U.S. also noted that the FCA expressly gives the U.S. the right to reconsider its decision not to intervene at a later time.  For this reason, the U.S. stated that it would be completely “unwarranted” and “inappropriate” to presume that the U.S. chose not to intervene because of the weakness of the case.  Accordingly, the U.S. requested that the Court “disregard and decline to draw any inference from the United States’ non-intervention” in the case.

PDE Data is a Claim for Purposes of the FCA

Next, the U.S. explicitly rejected the CVS Caremark Defendants’ argument that the PDE data submitted to CMS is not a “claim” for purposes of the FCA.  The U.S. first described the function of the PDE data in the context of the Part D program, stating that it serves as both a means of “payment” and “validation” of prescription drug claims and a means of year-end payment reconciliation with Part D Sponsors.  The U.S. also stated that as a condition of receiving its monthly payment from CMS, a Part D Plan Sponsor must certify the accuracy, completeness, and truthfulness of all data related to payment.  The U.S. specifically noted that if the “claims data” is generated by a “related entity, contractor, or subcontractor” such as a PBM, that PBM must “similarly certify” that the claims data it has generated is accurate, complete, and truthful, and will be used to obtain federal reimbursement.  Additionally, the U.S. stated that all subcontracts between Part D Sponsors and downstream entities such as PBMs obligate the downstream entity to comply with all applicable federal laws, regulations, and CMS instructions.  Thus, the U.S. did not support the CVS Caremark Defendants’ position that PBMs and other contractors have no obligation to certify the accuracy, completeness, and truthfulness of the data they generate in order to receive payment.

The U.S. then noted that “Defendants are wrong” in their assertion that PDE data is not a claim under the FCA, given the expansive definition of “claim” and the purpose and function of the PDE data.  Echoing Relator’s First Amended Complaint and his Opposition to Defendants’ Motion to Dismiss, the U.S. recognized that CMS expressly refers to PDE submissions as “claims data” in its Part D regulations, and also states in its instructions that PDE is a claim in the context of the Part D program.  The U.S. then argued that the “purpose and function of PDE data” puts it “squarely” within the definition of “claim” under the FCA, since it is used for payment and validation of claims as well as for year-end reconciliation.  The U.S. then referred the Court to the Relator’s Opposition to Defendant’s Motion to Dismiss, noting that it “correctly lists” the numerous ways in which PDE data causes the Government to make and determine the amount of payments under Part D.  As a final note, the U.S. submitted that if the Court were to adopt the CVS Caremark Defendants’ “unduly narrow” interpretation of “claim,” the Government’s ability to use the FCA to recover funds improperly paid under the Part D program could be limited in the future.

The Submission of PDE Data is Not “Public Disclosure” Under FCA

The U.S. also rejected the CVS Caremark Defendants’ notion that the PDE data submitted by the CVS Caremark Defendants to CMS were “public disclosures” for purposes of the FCA.  According to Defendant, because the PDE data was available for “research, analysis, reporting, and public health functions” beginning in 2008, this PDE data was “publicly available” and thus its submission would constitute a “public disclosure.”  The U.S. flatly rejected this, noting that Defendants’ argument was a “mischaracterization” of the term “public” and was tantamount to a claim that “everything the Government has in its files is public information.”  Instead, the U.S. noted that PDE data was only provided to researchers outside the Government on a “minimum data necessary policy” with specific legal restrictions to protect that data from being improperly disclosed.  Thus, the U.S. agreed with Relator that the very limited circumstances in which the Government releases PDE data to entities outside the Government for research purposes do not make the submission of PDE data for Part D payment a public disclosure under the FCA. 

Relator Plead Falsity and Materiality Under the FCA

Finally, the U.S. argued that Relator had adequately pled both falsity and materiality under the FCA.  Citing U.S. ex rel. Wilkins v. United Health Group, Inc., 659 F.3d 295 (3rd Cir. 2011), the U.S. noted that to show falsity under either an express or implied false certification theory, a Relator must allege “not only a receipt of federal funds and a failure to comply with applicable regulations, but also that payment of federal funds was in some way conditioned on compliance with the regulations.”  The U.S. then contrasted the present case from Wilkins, in which the defendant Part D Sponsor merely violated Part D marketing rules which were not directly related to the payments made by CMS.  By contrast, the CVS Caremark Defendants’ alleged violations in the Spay case pertained to the accuracy of the PDE data, which the CVS Caremark Defendants certified compliance with and which is used by CMS to calculate payment.  The U.S. also found that this “falsity” was “material” to the Government’s decision to pay since compliance with Part D regulations regarding the accuracy of PDE data would have a “natural tendency” to influence the Government’s decision to pay.  Thus, the U.S. reasoned that Relator had pled falsity and materiality.

Defendants’ Rule 12 Motion Should Not Be Granted

Finally, the U.S. urged the Court to reject Defendants’ Rule 12 motion to dismiss.  The U.S. emphasized that “Relator has described in great detail in the Amended Complaint the manner in which Caremark’s submissions to the Government were allegedly false and material to the payments made under the Part D program.”  Thus, the U.S. asserted that it “believes that at this stage, [R]elator has stated a claim upon which relief may be granted and a Rule 12 dismissal would not be appropriate.”


Overall, this Statement of Interest demonstrates that the U.S. has a strong interest in protecting the Part D program from potential fraud and abuse and intends to utilize the federal False Claims Act as a means of doing so.   While the outcome of this decision is still pending, the U.S. has put Part D Sponsors, PBMs, and contractors on notice that it will not tolerate fraud in the Part D Program.

US Intervenes In False Claims Act Lawsuit Against Florida-Area Hospice

Tuesday, September 11th, 2012

The Department of Justice announced on September 6, 2012, that the government has intervened in a whistleblower lawsuit against Hospice of the Comforter Inc. (“HOTCI”) alleging false Medicare.  HOTCI provides hospice services to patients residing in the vicinity of Orlando, Fla.

The lawsuit, filed by HOTCI’s former vice-president of finance, Douglas Stone, alleges that HOTCI knowingly submitted false claims to Medicare for hospice care for patients who were not terminally ill.  Specifically, the lawsuit contends that HOTCI’s chief executive officer verbally instructed HOTCI employees to admit Medicare recipients for hospice care even where there had not yet been a determination that they were eligible for the hospice benefit.  The lawsuit also alleges that, after being notified that it would be audited by its Medicare contractor, HOTCI formed an internal committee to review the eligibility of its Medicare patients and discharged at least 150 patients in 2009-2010 as being ineligible for the Medicare hospice benefit.

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NY Hospital To Pay $13.4 Million To Settle False Claims Act Actions With The US and New York State

Tuesday, September 11th, 2012

New York Downtown Hospital, located in lower Manhattan near New York City’s financial district, will pay $13.4 million to settle two lawsuits pending in the United States District Court for the Eastern District of New York. 

The lawsuits entitled United States and New York State ex rel. Gelfand v. Special Care Hospital Management Corporation, et al., CV-02-6079 (EDNY) (LDW) (ETB) and United States and New York State ex rel. Montaperto v. New Parkway Hospital, et al., CV-05-4911 (EDNY) (LDW) (ETB), are a result of allegations from two whistleblowers under the Federal False Claims Act and the New York State False Claims Act.  The whistleblowers, Mathew Gelfand, M.D. and Enrico Montaperto, allege that NY Downtown and Special Care Hospital Management Corporation operated an unlicensed drug and alcohol detoxification clinic and engaged in an illegal scheme to pay for the referral of Medicaid and Medicare patients to be treated at NY Downtown.  Gelfand and Montaperto have agreed to accept a relator share of 18% of the amount recovered be each the United States and New York State from the lawsuit.

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