Archive for June, 2014

Order in the Clinic de la Mama Kickback Case

Monday, June 30th, 2014

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

Thursday, June 26th, 2014

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

Friday, June 20th, 2014

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

Friday, June 20th, 2014

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

Friday, June 20th, 2014

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

Tuesday, June 17th, 2014

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

Tuesday, June 17th, 2014

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.

Two Whistleblowers Awarded $875,000 by the SEC

Friday, June 13th, 2014

On June 3rd, the Securities and Exchange Commission awarded more than $875,000, to be split evenly, to two whistleblowers that provided high-quality tips and assistance resulting in an enforcement action in a complex area of the securities market.

The Dodd-Frank Act authorized the SEC’s whistleblower program which awards 10 to 30 percent of the money collected in cases resulting in sanctions exceeding $1 million.

The SEC cannot disclose a whistleblower’s identity.

Since late 2011, the SEC’s whistleblower program has awarded eight individuals for assistance in bringing successful enforcement action.

For more information, click here.

$9.9 Million Paid by Medtronic, Inc. to Resolve Kickback Claims

Monday, June 2nd, 2014

Medtronic, Inc., a Fridley, Minnesota company, is alleged to have used various types of payments as incentives to physicians for implantation of pacemakers and defibrillators.  Under the False Claims Act, the company agreed to pay 9.9 million dollars to resolve these allegations.

Medtronic induced the physicians to implant these devices by:  paying the physicians for speaking engagements to increase the flow of referrals; create business and marketing plans for the physicians without any cost; and the physicians were also given tickets to sporting events.  It was alleged by the United States that Medtronic used these means to cause false claims to be submitted to Medicare and Medicaid.  It was alleged that Medtronic used these means to encourage the physicians to continue to use their products or to begin using their products as an alternative to competitor’s products.

A former employee of Medtronic, Adolfo Schroeder, was the whistleblower who brought the case under the provisions of the False Claims Act.  He will receive approximately 1.73 million dollars. The Department of Justice’s Civil Division; the U.S. Attorney’s Office for the Eastern District of California; and the Office of Inspector General of the U.S. Department of Health and Human Services worked together in settling this claim with Medtronic, Inc.

For more information, please click here.

$40.9 Million to be Paid by King’s Daughters Medical Center to Resolve False Claims

Monday, June 2nd, 2014

The Justice Department announced that Ashland Hospital Corp. d/b/a King’s Daughters Medical Center (KDMC) has agreed to pay nearly $41 million for needless medical procedures, between 2006 and 2011, including coronary stents and diagnostic catherizations that were submitted falsely to the Kentucky Medicaid and federal Medicare programs.  It is also alleged that the hospital had a prohibited financial relationship with physician to refer patients to the hospital.

Allegedly, the physicians were fabricating medical records to substantiate these unwarranted procedures which generated millions of dollars of reimbursements through the Medicare and Medicaid systems.  It was also alleged that KDMC violated the Stark Law by paying physician salaries well above fair market value.

KDMC has agreed to sign a Corporate Integrity Agreement with HHS-OIG, obligating the hospital to undergo extensive internal compliance reforms and to commit to a third-party review of any claims to the federal health care program over the next five years.  Approximately $1,018,380 will be given to The Commonwealth of Kentucky for the state’s portion of the recovered funds.

The FBI, HHS-OIG, Kentucky Office of the Attorney General, Medicaid Fraud and Abuse Control Unit, the Commercial Litigation Branch of the Department of Justice’s Civil Division and the U.S. Attorney’s Office for the Eastern District of Kentucky worked together in this investigation.  No determination of liability has been found under the claims of the settlement agreement.

For more information, please click here.