Archive for July, 2014

Agencies finalize Rule on Contractor Whistleblower Costs

Wednesday, July 30th, 2014

Effective July 25, 2014, The Department of Defense, General Services Administration, and NASA have implemented as a final with changes, an interim rule amending the Federal Acquisition Regulation (FAR) to adopt a section of the National Defense Authorization Act (NDAA) for the Fiscal Year (FY) 2013.  The rule addressed permissible legal costs incurred by a contractor or subcontractor related to a whistleblower proceeding brought by the submission of a complaint of reprisal by the contractor or subcontractor.

            The final rule will stop government contractors and subcontractors from charging the government legal fees related to whistleblower retaliation suits. These fees, incurred with any proceeding brought by a contractor or subcontractor employee submitting a whistleblower complaint of reprisal in accordance with 41 U.S.C.4712 or 10 U.S.C.2409, are treated the same as any pre-existing cost principle treats costs incurred with any proceeding brought by a Federal, State, local, or foreign government. This applies for violations of, or failure to comply with, any laws or regulations by the contractor, or costs incurred in connection with any proceeding brought by a third party in the name of the U.S. under the False Claims Act, 31 U.S.C.3730.  The final rule has been modified to include whistleblower complaints in the provisions at FAR 31.205-47(c).

Virginia Company will pay $343,000 to settle Medicare fraud claim

Friday, July 25th, 2014

On Tuesday, July 22, 2014, a federal judge in Pittsburgh approved a settlement in which a Virginia-based medical research firm will pay $343,000 to the U.S. to settle claims that it defrauded the government by improperly marketing genetic tests to patients at a Green County medical office.

The Justice Department asserts that American International Biotechnology (“AIB”) and a former contract sales agent, Jason Hoover, violated the federal False Claims Act by improperly obtaining referrals for genetic tests and billing to Medicare. Mr. Hoover was also accused of offering kickbacks of $50 per patient to a nurse at Lions Medical Center, a facility operated by Greentree Medical Center, located in Rices Landing, PA.

Greentree Medical Center initially raised the federal suit that was later joined by the Justice Department. In the complaint, filed in April 2013, Greentree and the U.S. asserted that Mr. Hoover devised the scheme starting in 2012. Mr. Hoover regularly visited Lions Medical to assess cardiac equipment, thereby obtaining patient insurance information. Mr. Hoover established exclusive contact with a registered nurse named Matt Burkett after meeting at a dinner to pitch AIB’s genetic tests. Under the guise that the genetic tests would be part of a free clinical trial, Mr. Hoover asked Mr. Burkett to simply swab each patient’s cheek and submit an order with the patient’s signature. According to the complaint, Mr. Hoover initially offered a $50 kickback for the nurse’s help. Mr. Burkett declined the bribe, but asked who specifically should be swabbed. Mr. Hoover instructed Mr. Burkett to swab “everyone who comes through the door.” Believing the testing was free and part of a research project, Mr. Burkett obtained patient consent and swabbed the patients’ cheeks. Mr. Hoover then completed the blank form and submitted the forms to the insurance companies, including Medicare. In some cases, Medicare paid as much as $4000 per patient for this unwanted testing. On numerous occasions Greentree asked AIB to stop billing, to no avail.

AIB asserts that they were unaware such activities occurred and put the blame solely on Mr. Hoover’s shoulders. “[AIB] had no knowledge of the alleged actions of the contract sales agent, and only learned of the action on receipt of the complaint; it did not approve or sanctions the actions of the sales agent.” AIB chose to settle the case rather that litigate to “avoid the delay; uncertainty, inconvenience and expense.”

Kickback Case Survives Motion to Dismiss

Monday, July 7th, 2014

A fraud suit alleging that five hospitals in the south bribed local clinics to refer undocumented immigrants to the hospitals to give birth has survived a motion to dismiss.


In the suit, captioned U.S. ex rel. Williams v. Health Management Associates (M.D. Ga.), a whistleblower alleges that the Georgia- and South Carolina-based hospitals paid local clinics fees, ostensibly for translation support, assistance in determining Medicaid eligibility and other services.  The clinics serve pregnant undocumented immigrants.  The women who use the clinics generally do not qualify for government healthcare programs.  However, Medicaid does reimburse hospitals for emergency services when undocumented immigrants give birth at their facilities.


The whistleblower in Williams alleged that the fees paid by the hospitals to the clinics were sham payments to induce the clinics to refer more patients to the hospitals. 


The defendants argued that the whistleblower’s complaint failed to state a claim for relief, but the court disagreed.  Among the reasons, the court noted that the whistleblower had alleged that the defendants executed certifications to the government falsely stating that the services for which they sought reimbursement were procured without payment of a kickback.  The certification further stated that the information provided to the government was “true, correct and complete.” 


Based on these alleged false certifications, the court concluded that the whistleblower had adequately alleged that the defendants had falsely billed the government for services provided to the undocumented pregnant women. 


The case now proceeds to discovery.




Nursing Home Operator Loses Challenge to ‘Worthless Services’ Conviction

Monday, July 7th, 2014

The Eleventh Circuit has turned back an appeal from a nursing-home operator convicted of healthcare fraud after he billed government programs while his residents went without food, diapers and medication.

The case, United States v. Houser, is notable for its treatment of the so-called “worthless services” theory, commonly used by whistleblowers alleging fraud against the government under the False Claims Act.

Houser, the nursing-home operator, ran three facilities in Rome, Georgia.  The facilities lacked working heating, air conditioning, diapers and food.  Staff had to borrow medications from some residents and give them to others because Houser failed to pay his pharmacy bill.

Houser was charged with and convicted of conspiracy to commit healthcare fraud based on his submission of claims for the virtually nonexistent services he provided to his residents.  On appeal, Houser argued that his conviction was impermissibly based on a “worthless services” theory, which, he contended, could be applied only in civil suits.  Under a worthless services theory, a contractor can be held liable for defrauding the government if, in performing a contract, it provides products or services that are so deficient as to be of no value to the government.

Houser contended that the worthless-services concept was too vague to be imported into criminal law.  The Eleventh Circuit rebuffed his argument, concluding that his conviction rested on his failure to provide certain services at all, not just the lack of value for services he did provide.

“We do not believe that Mr. Houser’s conviction requires us to draw the proverbial line in the sand for purposes of determining when clearly substandard services become ‘worthless,’” the court wrote.

Armstrong FCA Suit Cycles Onward

Tuesday, July 1st, 2014

Seven-time Tour de France winner Lance Armstrong has been no match so far for the False Claims Act.

A Washington, D.C., federal judge on Friday denied Armstrong’s request to dismiss the FCA suit brought against him by former teammate Floyd Landis and the federal government.  The suit alleges fraud against the U.S. Postal Service, which sponsored Armstrong during the years when, he now admits, he was doping.

Armstrong’s lawyers had argued that the government had brought the claims too late because it knew or should have known much earlier of Armstrong’s doping.  But Judge Robert L. Wilkins ruled that a prior investigation into doping by Armstrong did not put the government on notice of his cheating.  The earlier investigation actually vindicated Armstrong, who did not admit to doping until January 2013.

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