Archive for September, 2014

$33.6 Million Qui Tam Judgment against Gosselin World Wide Moving

Monday, September 29th, 2014

In early August, a federal jury found Gosselin World Wide Moving NV and its executive Mark Smet liable for submitting false claims in 2001 and 2002 to the U.S. government to the tune of $33.6 million, which, when trebled per the federal False Claims Act, rises to $100.8 million. The jury also held that Gosselin submitted nearly 59,000 false claims, which are now subject to penalties under the federal False Claims Act. The parties continue to litigate the matter.

Relator Kurt Bunk, a German employee of one of the defendant shipping companies, filed a qui tam suit against Gosselin in 2002; American Ray Ammons, who owned a freight-forwarding company, filed a similar lawsuit in 2007. Both alleged that Gosselin, as a subcontractor to the Department of Defense, and Smet conspired and submitted false claims to the government while moving military personnel’s household items overseas to Germany and back.

The cases are U.S., ex rel. Bunk v. Gosselin World Wide Moving, Case No. 1:02-cv-01168, and U.S., ex rel. Ammons v. Gosselin World Wide Moving NV, Case No. 1:07-cv-01198. Both are filed in the Eastern District of Virginia.

In a separate qui tam case filed under the federal False Claims Act, Gosselin was found liable for a $24 million civil penalty payment for submitting false claims as a direct contractor to the Department of Defense. While the trial court declined to impose the statutory per-claim penalty, considering it a violation of the U.S. Constitution’s Eighth Amendment’s ban on excessive fines, the Fourth Circuit reversed course in December 2013 and reinstated the penalty, noting that high penalties act as a fraud deterrent. Gosselin has petitioned the U.S. Supreme Court to review this ruling.

Shire Pharmaceuticals LLC agrees to pay $56.5 million to resolve false claims act allegations regarding drug promotion practices

Monday, September 29th, 2014

Shire Pharmaceuticals, LLC, a pharmaceuticals company based in Pennsylvania, recently signed a settlement agreement with the Department of Justice to resolve False Claims Act allegations related to its promotion practices of several drugs.  Shire, which both manufactures and sells pharmaceuticals used in treating attention deficit hyperactivity disorder (ADHD), was facing allegations that it violated the False Claims Act beginning in 2004.  The allegation part of a series of lawsuits brought by a former Shire executive and three former Shire sales representatives.  As part of the settlement, one of the whistleblowers will receive $5.9 million.

Under the settlement agreement, Shire will pay $56.5 million of which the federal government will receive $35,713,965 and state Medicaid programs will receive $20,786,034.  Shire also executed a separate agreement with HHS – termed a “corporate integrity agreement” – designed to address the company’s future marketing efforts.

The lawsuits alleged misconduct related to Shire’s marketing and promotion practices, including that, from 2004 to 2007, Shire marketed Adderall XR, an ADHD medication, on unsupported claims that it would prevent poor academic performance, loss of employment, criminal behavior, traffic accidents, and sexually transmitted diseases.  Shire also claimed that Adderall XR could be used in the treatment of conduct disorder even though it was not approved by the FDA for such treatment.

Shire had also claimed that another of its ADHD medications, Vyvanse, was less susceptible to drug abuse than similar non-Shire products.  In fact, one Shire medical science liaison allegedly told a state formulary board that Vyvanse provides less abuse liability than “every other long-acting release mechanism” on the market.  However is was the government’s contention that no Shire study had actually concluded that Vyvanse was not abusable; to the contrary, the Vyvanse label included in FDA-mandated warning of its potential for misuse and abuse.  Shire also claimed without support that Vyvanse would prevent car accidents, divorce, arrest, and unemployment.

The full text of the DOJ press release can be found here.

IRS Commissioner Declares Himself a “Big Believer” in the IRS Whistleblower Program

Thursday, September 25th, 2014

At a speech last week, IRS Commissioner John Koskinen announced changes aimed at creating better relations between whistleblowers and the IRS’s whistleblower program. The changes include a 70% increase in staff at the IRS whistleblower office – 31 new employees – to handle whistleblower filings. Mr. Koskinen’s remarks follow new whistleblower regulations designed to provide more information to whistleblowers with pending claims and pay more money to those with substantiated cases.

In his speech, Koskinen called himself a “big believer” in the whistleblower program and noted the deterrent effect that the program has on companies contemplating tax evasion. He also emphasized his commitment to expand “the program’s reach and improving communications with existing or potential whistleblowers.”

The full text of the IRS Commissioner’s remarks can be found here.


Eighth Circuit takes Step Towards a Less Stringent Standard for Pleading Fraud Under the False Claims Act

Thursday, September 18th, 2014

The Eighth Circuit had previously stated that one who files a lawsuit under the False Claims Act must provide examples of the allegedly fraudulent conduct. Last week, the court seemed to back away from this position in United States ex. rel. Thayer v. Planned Parenthood of the Heartland, No. 13-1654 (8th Cir. August 24, 2014) when it held that such specificity is not required for every complaint brought under the FCA.  Rather, examples do not have to be given if the plaintiff is able to provide reliable indicia from which one could infer that false claims were actually submitted to the government.

The plaintiff in Thayer was the manager of two Planned Parenthood clinics and oversaw the defendant’s billing and claims systems.  The court held that given this position, there was a sufficient indicia of reliability to allow the plaintiff to proceed with allegations that the defendant violated the FCA by filing claims for: 1) unnecessary quantities of birth control pills; 2) birth control pills dispensed without examinations or without or prior to a physician’s order; 3) abortion-related services and 4) the full amount of services for which payment had already been provided.  However, the contention that Planned Parenthood violated the FCA by instructing patients who experienced abortion-related complications to give false information to medical professionals at other hospitals, causing those professionals to unknowingly file claims for services performed in connection with abortions was dismissed because there was no indication in the complaint that the plaintiff had access to the billing systems used by these other hospitals or that she know about their billing practices.  As a result, the plaintiff was only able to speculate that false claims were submitted by these other hospitals and this did not provide a factual basis from which the court could infer that this actually occurred.

It remains to be seen how courts in the Eighth Circuit will apply Thayer.  However, with this decision, the majority of the Circuit courts that have addressed this issue have held that a FCA complaint does not necessarily have to provide examples of the false claims which were submitted to the government in order to survive a motion to dismiss.

Fresenius Medical Care Holdings, Inc., v. U.S.

Thursday, September 18th, 2014

The First Circuit Court of Appeals recently held that False Claims Act defendants can deduct portions of their civil settlement payments if the parties have not, in negotiating a settlement, agreed to the tax consequences and the payment is considered compensatory as opposed to punitive.

Between 1993 and 1997, several whistleblowers filed separate lawsuits against Fresenius Medical Care Holdings, Inc., an operator of dialysis centers.  Consequently, in 1995, the U.S. government opened its own civil and criminal investigations.  In 2000, the parties agreed to globally settle all claims for $486,334,232.

However, the parties’ settlement agreement remained silent as to how much of this sum was compensatory, a label that would permit Fresenius to deduct the payment in its yearly tax filings per the Internal Revenue Code, and how much was punitive, which would make the payment non-deductible.  The parties continued to negotiate and litigate these labels and ultimately agreed that $101,186,898 were for criminal fines (i.e., punitive), $192,550,517 were single damages for the civil False Claims Act violations (i.e., compensatory as Fresenius was making the government whole for the money fraudulently taken from it), and $65,800,555 constituted the whistleblowers’ statutory rewards (i.e., again, compensatory).

However, the parties could not agree on how to characterize the remaining $126,796,262, which likely resulted from either the False Claims Act’s treble damages clause or penalty payment provision.  Fresenius sought to label the entire payment as compensatory, which would entitle it to a refund on its taxes, but the government refused to agree.    The parties went before a trial court and Fresenius, in particular, as the taxpayer, presented evidence as to why it was entitled to the deduction.  Thereafter, the court asked the jury to determine what amount of the almost $127,000,000 was necessary to make the government whole as if Fresenius had never committed the fraud in the first place.  The jury found that $95,000,000 was compensatory in nature, and the trial court entered a judgment for Fresenius for $50,420,512.34, the amount of its refund.  The trial court also denied the government’s motions for judgment as a matter of law

The U.S. appealed, claiming that the trial court improperly denied its motion for judgment as a matter of law and issued incorrect jury instructions.  In Fresenius Medical Care Holdings, Inc. v. U.S., 2014 U.S. App. LEXIS 15536 (1st Cir. Aug. 13, 2014), the First Circuit Court of Appeals focused on the government’s first reason for appeal and affirmed the trial court’s holding.

Specifically, the Court noted that the Internal Revenue Code allows the deduction of ordinary expenses and explicitly precludes the deduction of any penalties.  The Court also noted that singular damages under the False Claims Act were plainly deductible as compensation to the government.  The Court reasoned that the trebled damages also constitute compensation because they account for the costs of bringing a False Claims Act action and for the time-value of the delay the government endures in receiving its singular damages in the first place.

Further, the Court held that the U.S.’ reliance on a Ninth Circuit ruling, Talley Industries, Inc. v. Commissioner, 116 F.3d 382 (9th Cir. 1997), was misplaced.  The Court noted that requiring the U.S. to always agree to the tax characterization of a settlement sum before a defendant could seek a tax deduction would grant the government inordinate bargaining power with regard to settlement negotiations.  Moreover, the Court held that such an approach would ignore the long-held beliefs that courts should explore the economic realities of transactions when the parties’ tax consequences are unclear and/or questionable and that settlement funds should be treated the same as if they were achieved in judgment for tax purposes.  Finally, the Court held that the government’s reliance on Talley was questionable—if the ruling itself already wasn’t—because of that lower court’s attempted exploration, on remand, of the economic realities of the payment, something that the government’s position in this case did not take into account.

Note that the Court perfunctorily addressed the government’s second contention regarding the improper jury instructions.  While the Court mainly referred back to its discussion pertaining to the motion for judgment as a matter of law, it did note that the government had sought the same allocation of deductible and non-deductible to the $127,000,000 that applied to the $359,537,970 that was already labeled as compensatory or punitive.  However, the Court held that this argument was tardy, as the government had not raised it before the trial court, and did not comment on its merits.

New York Times, “Pervasive Medicare Fraud Proves Hard to Stop”

Wednesday, September 17th, 2014

The New York Times published an article noting that, despite huge investments in preventing Medicare fraud—up to $600 million a year—fraud against the program persists to the tune of $60 billion, which is equivalent to 10% of Medicare’s cost. For example, last year, the federal government was only able to recover $4.3 billion. Such news only serves to emphasize the role of whistleblowers who, with the aid of counsel, can alert the government to the existence of fraud much more quickly than many of the fraud prevention systems in place today.

Federal prosecutors, F.B.I. agents, investigators, paralegals and other paraprofessionals, some of whom serve on one of nine specialized federal strike forces, work on behalf of the federal government to root out fraud in the Medicare system. In addition, the U.S. government has hired contractors to assist in fraud detection; these include: recovery audit contractors who work to reduce hospital overbilling and earn their keep by receiving anywhere from 9 to 12.5% of the money they recover; Medicare administrative contractors who focus on claim payments; and zone program integrity contractors who specialize in fraud. Moreover, The Centers for Medicare and Medicaid Services (“CMS”) has invested $100 million into a computer system that analyzes medical claims daily and searches for suspicious patterns that indicate fraudulent billing.

Recent successes include three strike forces working together earlier this year to charge 90 people with $260 million worth of fraudulent billing. Meanwhile, the computer program assisted contractors in identifying and then cutting off a Texas ambulance company for false billing after just $1,800 was billed in 2013, compared to the $312,000 the ambulance service earned in 2012.

However, despite the large number of people working on fraud detection and these recent gains, the New York Times noted that the federal government’s efforts are still falling short when compared to the sheer scale of the fraud. The government’s anti-fraud efforts appear to be stymied in part by a lack of coordination and cooperation among contractors, a lack of communication with the government, and contractors’ potential conflicts of interest with the very entities they are examining.

In addition, the federal government’s fraud prevention system oftentimes leaves private entities, such as insurance and technology companies, with responsibility for handling claims with minimal to no government oversight. In fact, CMS is only able to manually review 3 million of the 1.2 billion claims it receives each year, leaving the remainder of compliance oversight to the private entities that provide private insurance and software.

And, oddly, those contractors who have been successful have assisted in slowing down their own programs. For example, recovery audit contractors have assisted Medicare in recovering $8 billion since 2009. But, because of the hospitals’ right to appeal the contractors’ findings, there is now a two year delay for adjudicating those appeals. In addition, hospitals have complained that the contractors are nothing more than bounty hunters because of their reimbursement scheme.

Furthermore, for an unknown reason, the government shut down a popular fraud alert hotline in South Florida that would turn tips around in 48 hours to investigators. Now, those calls are routed to the government’s Medicare hotline, and tips take months to be addressed.

According to the New York Times’ report, government officials are frustrated with the lack of management, communication, and cooperation between the government and its contractors as well as between the contractors themselves. In fact, an October 2013 report from the Government Accountability Office criticized Medicare for its lack of oversight of its contractors and for not aligning contractors’ financial goals with the aims of the agency. Other recent reports have criticized Medicare’s conflict of interest rules for its contractors as well as its supposed recoveries through the $100 million software program.

However, Medicare’s Center for Program Integrity, which acts as its anti-fraud center, has heard these criticisms and advised the New York Times that it is focusing more than ever on fraud detection and resolution.

Nevertheless, the limitations of the existing fraud detection system makes it clear that the best way to quicken and enhance the government’s investigation of fraud remains those insiders with knowledge of a provider’s false billing who are willing to step forward and blow the whistle.

For more information, please click here.

U.S. and Illinois, ex rel. Baltazar v. Warden, et al.

Tuesday, September 16th, 2014

U.S. Magistrate Judge Daniel G. Martin of the Northern District of Illinois recently issued an opinion that sanctioned a defense attorney for badgering a whistleblower during her deposition. The ruling serves as a reminder to potential whistleblowers of the difficulties in coming forward with evidence of fraud but also that the courts can be approached to ensure fairness in such litigation.

In U.S. and State of Illinois, ex rel. Baltazar v. Warden, et al., Case No. 07 C 4107 (N.D. Ill.), whistleblower Kelly Baltazar filed suit against her former employer Lillian S. Warden and her corporation, Advanced Healthcare Associates, for filing false claims for payment with Medicare and private insurers. As part of the ongoing case, the defendants’ counsel took the deposition of Baltazar. However, during the deposition, the defendants’ counsel was insulting and belligerent. Consequently, Baltazar filed a motion seeking a protective order and sanctions.

On September 8, 2014, Magistrate Judge Martin issued his opinion and granted Baltazar’s motion in part. While the Court did not agree with each point raised by Baltazar as evidence of unprofessional conduct, the Court did agree that the defendants’ counsel, over the course of 5 hours and 2 minutes: improperly accused Baltazar of being a liar; inappropriately acted with hostility, utilized a sarcastic, disrespectful tone, and personally attacked Baltazar for her actions before and during the lawsuit; embarrassed Baltazar by questioning her about the impact of her lawsuit on the individual defendant and her family and finances; intimidated Baltazar and her counsel; and wrongly commented on Baltazar’s testimony.

The Court held that the defendants’ counsel’s actions constituted sufficient grounds for issuing a protective order and sanctions pursuant to Federal Rules of Civil Procedure 26(c)(1) and 30(d). Specifically, the Court said that the same defendants’ counsel could not resume taking or even attend the remaining 1 hour and 58 minutes of Baltazar’s deposition and that the deposition would continue at the federal courthouse. The Court also listed specific rules of decorum the parties would have to follow in order to prevent a repeat of the behavior challenged by Baltazar. Moreover, the Court held that the defendants’ counsel was responsible for paying Baltazar’s attorney’s fees and costs for bringing and arguing the motion in the first place.

Two Nursing Home Companies on the Hook for Unnecessary Rehab Services

Monday, September 15th, 2014

Life Care Services (Life Care) and CoreCare V (CoreCare) have agreed to pay the Department of Justice $3.75 million to settle allegations of false claims for billing for unreasonable or unnecessary rehabilitation therapy through RehabCare Group East (RehabCare), a rehabilitation therapy provider they hired to provide rehabilitation therapy services.  The Department of Justice alleged that Life Care and Core Care failed to prevent RehabCare from providing unreasonable or unnecessary therapy to patients in order to increase Medicare reimbursements to the facilities.  The government also alleged that the two companies failed to prevent RehabCare from engaging in multiple practices designed to inflate Medicare reimbursements. 

For more information, please click here.

Tennessee Federal Court Awards Damages against a Contractor even though the Government Received the Product for which it Paid

Monday, September 15th, 2014

The United States District Court for the Middle District of Tennessee has ordered a contractor who violated the False Claims Act to pay more than $700,000 in damages even through the contractor provided the government with the product it purchased.

In United States ex rel. Brian Wall v. Circle C Construction, LLC, No. 07-cv-91 (M.D. Tenn. August 22, 2014), Circle C Construction entered into a contract with the Army to construct buildings at a military base. The contract required Circle C to ensure that its subcontractors paid its employees in accordance with the prevailing minimum wage. Circle C subsequently submitted certifications to the government that it had complied with the minimum wage requirement. It was subsequently determined that the certifications were false because certain electricians were not paid what they were owed under the contract.

One of the issues which arose during the proceeding to assess damages was the amount of money which, given its fraud, Circle C would have been entitled to receive. The government argued that Circle C would have received nothing because, if it had known that Circle C would not comply with prevailing wage requirement for a portion of the project, it would not have paid Circle C for that portion. Circle C responded that it should not be required to pay any damages because the false certifications and the failure to pay the electricians the monies they were owed did not diminish the value of the buildings that the government purchased. The court agreed with the government, noting that there was ample evidence that the government would not have paid Circle C for the electrical work if it had known that Circle C was violating the minimum wage requirement. Therefore, Circle C was required to pay the government all of the monies it received in connection with the electrical work which was performed on the buildings. In accordance with the FCA, this amount was subsequently trebled.

False Claims Act Suit Accusing Merck of Falsifying Information regarding its Mumps Vaccine will Proceed

Wednesday, September 10th, 2014

The United States District Court for the Eastern District of Pennsylvania has denied Merck’s attempt to obtain dismissal of a lawsuit accusing the drug company of violating the False Claims Act by providing the government with false information regarding the effectiveness of its mumps vaccine.

In United States of America, ex. rel. Krahling v. Merck & Co, Inc., former employees claimed that Merck falsified and manipulated test data to make its mumps vaccine appear to be more effective than it actually was. According to the relators, the company failed to provide the government with accurate test results in order to mislead the government into purchasing the vaccine and that because the vaccine was not as effective as claimed, the government received something other than what it paid for. Merck argued that the relators were actually challenging the accuracy of the information contained on the product’s label and that this issue should be addressed by the Food and Drug Administration rather than through a suit under the FCA. The court disagreed, indicating that it would be inconsistent with the purpose of the FCA to hold that only the government can charge a defendant with committing fraud on the FDA or violating its regulations. The court then concluded that the relators had set forth sufficient facts in their complaint to support their contentions that Merck 1) submitted claims for payment to the government for the purchase of the vaccine after the allegedly fraudulent testing had taken place; 2) failed to provide the government with information regarding the effectiveness of the vaccine and this omission was material to the government continuing to purchase this product; 3) had a duty to provide the government with accurate information regarding the safety and effectiveness of the medication; 4) knew its claims were false and 5) deliberately concealed or provided incomplete information to the FDA. As a result, Merck’s motion to dismiss was denied and this issue will now proceed through the discovery process.