Archive for the ‘Federal False Claims Act’ Category

When Private Equity Meets the False Claims Act

Wednesday, August 15th, 2018

The United States recently filed a False Claims Act Complaint in Intervention against Florida-based compounding pharmacy Patient Care America (“PCA”), two PCA employees, as well as Riordan Lewis & Haden, Inc. (“RLH”), the private equity (“PE”) firm that acquired PCA and helped manage the company.  United States ex rel. Medrano, et al. v. Patient Care America, et al., 15-62617 (S.D. FL.)  The scheme alleged by the government was a common one: the payment of kickbacks for referrals of expensive compound drugs, which were often paid for by TriCare.  What was uncommon was the government’s focus on a PE firm.  Following the filing of the Complaint in Intervention, RLH, along with other defendants, filed Motions to Dismiss.  The government’s recently filed response brief opposing the Motions to Dismiss provides further insight into the interplay between the FCA and private equity investments in healthcare.

In opposing RLH’s Motion to Dismiss, the government focused on the fact that RLH was not a “passive investor,” but rather an active participant in PCA’s management, involved in PCA’s move to the compounding pharmacy space, and even oversaw PCA’s CEO.  RLH was also an experienced healthcare investor.  RLH quickly became aware of how much of PCA’s revenue came from TriCare and that much of PCA’s revenue was paid out in the form of commissions to independent contractor sales representatives, a violation of the Anti-Kickback Statute.

While the facts in the PCA matter may seem unique, they may be more common than a financial layperson would expect.  Private equity transactions nearly always operate under a “buy to sell” model.  The PE firm (or a consortium of firms investing together) effectuate a leveraged buyout (“LBO”) of the target company, using massive amounts of debt to finance the acquisition.  The cash flow from the acquired company is then expected to service the debt from the LBO.

PE firms believe that by acquiring the company and taking over its management they can drive profitability, allowing them to sell the company at a later date (typically around four to six years after the LBO) at a substantial profit.  The problem with the managerial facet of the private equity model is that the more the PE firm takes over operations, the more likely it is that they may face FCA liability.  The risk is particularly acute in highly regulated industries like healthcare.


As noted above, PE firms operate under a “buy to sell” model.  They are, virtually by definition, not passive investors; to the contrary, PE firms are usually highly active managers of their portfolio companies.  This is not a mutual fund but a company taking over equity and management.  These sorts of transactions are called “takeovers” for good reason.  PE firms do not just pore over balance sheets but often get involved in various managerial tasks, from marketing strategy to compliance oversight.  By providing managerial knowhow, the PE firm can take the reins and build a more profitable company that can then be sold at a handsome profit.

Either individually or with partner PE firms, a PE firm will tend to own a majority of the company’s equity.  Few PE firms will take the risk of such a sizable investment in an illiquid asset unless they hold a controlling portion of the company’s voting shares.  Accordingly, PE firms tend to have multiple seats on the acquired company’s board, have full power (given their equity stake) to hire and fire executives, and may also take part in management decisions outside the scope of the board.

Individual PE firms also frequently focus on certain industries.  As the RLH matter shows, if a PE firm is familiar with a certain industry it will be difficult for the firm to claim that it was ignorant of the regulatory mandates governing that industry, either in relation to its pre-LBO due diligence or its subsequent managerial role.  That is likely to be particularly apt in the case of healthcare and the Anti-Kickback Statute, a broad law that any healthcare investor would be expected to be intimately familiar with.

Financial Dynamics  

Given that the lifeblood of private equity is the LBO, the financial structure at play makes a PE firm an attractive target for FCA enforcement.  PE firms may siphon off much of a company’s profits in the form of distributions (e.g., dividends) and fees (e.g., monitoring fees paid to the PE firm for advising and managing the company).  As the PCA matter shows, at least in some cases, the government may think twice about allowing PE firms to profit off of fraud without facing liability.

Further, in light of the substantial debt service from an LBO (which commonly involves interest rates from 6% to 15%) much of the remaining cash flow from an acquired company is sent to debt investors.  This creates a dynamic where the target company may be unable to fund anything approaching a fair settlement with the government.  The ill-gotten gains have already been funneled out of the company to investors.  Perhaps more obviously, PE firms tend to have deep pockets and access to additional capital, making them particularly appealing targets when damages are substantial and the entity in which they have invested is strapped for cash.

Ultimately, as private equity continues to invest in industries which have high FCA exposure like healthcare, it may be that cases like PCA become more common.  More robust due diligence by private equity firms should be the norm moving forward.  After all, once the PE firm takes over and enters the company’s driver’s seat, it should come as no surprise if the government seeks to hold the driver liable.

The U.S. Attorney for Philadelphia Forges a Strike Force of Seasoned Prosecutors

Tuesday, August 7th, 2018

William M. McSwain, Esquire was nominated by President Donald J. Trump to be the 39th U.S. Attorney for the Eastern District of Pennsylvania. The Eastern District of Pennsylvania is one of the original 13 federal judiciary districts created by the Judiciary Act of 1789. It is also one of the nation’s largest districts covering over 4,700 square miles with over five million people residing within the district. The U.S. Attorney was unanimously confirmed and assumed his office on April 6, 2018. Mr. McSwain has reported he is in the process of revamping his Office which is not unusual after a change in administration. To that end, he has announced new initiatives and new hires, along with a change of supervisory attorneys throughout the Office.

Since his installation as U.S. Attorney, McSwain has vowed to bring more prosecutions of every kind within his nine county district. In accordance with earlier pronouncements, McSwain announced on Wednesday, August 1, 2018, that he is establishing an “Affirmative Civil Enforcement Strike Force” to “investigate and prosecute the abuse of government programs – including health care and procurement fraud.” Significantly, the Strike Force will investigate and litigate cases brought under the now 32 year old Federal False Claims Act. Similarly in 2007, the DOJ launched a Medicaid Fraud Strike Force in efforts to combat health care fraud, waste, and abuse. It has charged nearly 2,000 defendants since its enactment.

Recently, McSwain’s Office settled a case involving two pharmacy owners and the False Claims Act – the type of case the new Strike Force aims to handle. The Eastern District of Pennsylvania was one of the first U.S. Attorneys’ Offices in the nation to investigate and prosecute vigorously both procurement fraud and health care fraud cases. This had often been done with the assistance of qui tam relators and their counsel, under the False Claims Act. Mr. McSwain has signaled to the public that he wishes to build upon and expand the Office’s historic franchise in this area.

The Office’s Civil Division Chief Gregory B. David stated the new strike force “will continue the civil division’s long history of successfully combating fraud and enforcing important federal laws through civil investigations and actions.” McSwain explained the ACE Strike Force will assist our talented attorneys by supplying “additional firepower to focus on these critical matters.” The Strike Force will be led by Assistant U.S. Attorney John T. Crutchlow and supervised by ACE veteran litigators Gregory David and Deputy Civil Chief Charlene Keller Fullmer.

Puerto Rico Establishes its own False Claims Act

Wednesday, August 1st, 2018

On July 23, 2018, the Governor of Puerto Rico, The Honorable Ricardo Rosselló, signed House Bill 1627 into law, which establishes Puerto Rico’s version of the federal False Claims Act.  Puerto Rico’s new law is called “The Fraudulent Claims to Programs, Contracts, and Services of the Government of Puerto Rico Act.”  This is a significant development for Puerto Rico.  The act creates a civil recovery method when false claims are submitted to the government of Puerto Rico.  It also allows for a statutory reward for whistleblowers and allows for the recovery of costs and attorneys’ fees for those who file successful qui tam suits under the act.

Governor Rosselló’s press release specifically touts the measure as a method to prevent Medicaid fraud and secure federal healthcare funds for Puerto Rico.  The law creates a Medicaid Fraud Control Unit at the Puerto Rico Department of Justice.  Further, it outlines the duties of the new Fraud Unit as well as the required structure of the unit.  The unit will be headed by a director, be comprised of a team of experienced lawyers, and have assigned auditors to monitor and review records.

Due to the fact that Congress conditioned 1.2 billion dollars for Puerto Rico’s Medicaid program on the territory taking affirmative steps to create a Medicaid Fraud Control Unit, the enactment of the law grants Puerto Rico additional federal funds to be used for healthcare. Governor Rosselló commented that this additional money will benefit the over 600,000 Puerto Rican Medicaid beneficiaries.

Significantly, the new law is not limited to Medicaid fraud; it also applies to other types of claims made to and contracts entered into by the Puerto Rican government.  While Chapter Three of the law specifically considers Medicaid fraud, Chapter Four provides for “fraudulent claims” generally.  The law is more expansive under Chapter Four, and it applies to any false or fraudulent claim made to any government program.

The broad drafting of the law is especially noteworthy given the fact that Puerto Rico is still actively recovering from Hurricanes Irma and Maria. The scale and scope of the catastrophe in Puerto Rico after Hurricane Maria was unprecedented.  Experts have estimated that recovery efforts will total in excess of $95 billion dollars.  The government of Puerto Rico is currently entering into contracts with third parties for the repair, restoration, and recreation of various critical infrastructures such as Puerto Rico’s electrical power grid and wastewater system.   Having a mechanism through which the territory can recover from individuals or corporations who knowingly defraud the government allows Puerto Rico to protect itself from bad actors seeking to take advantage of recovery efforts.

Under the law, the Relator or Whistleblower is entitled to receive no less than fifteen percent (15%) but not more than twenty-five percent (25%) of the proceeds of the action or settlement of the claim when the Puerto Rican government elects to intervene.  In instances where Puerto Rico declines to intervene, the Relator is entitled to no less than twenty-five percent (25%) and no more than thirty percent (30%) of the recovery.  The law also provides for a limited recovery of a fixed ten percent (10%) for those individuals who file a complaint based on information was easily accessible to the public.

The law further states that when the Government and/or Relator prevail, the court may impose additional costs on the defendant for reasonable litigation expenses and attorneys’ fees.  The compensation provisions of the law are a signal that Puerto Rico is actively encouraging its residents with knowledge of fraud to come forward.

The Fraudulent Claims to Programs, Contracts, and Services of the Government of Puerto Rico Act also considers jurisdiction for future complaints.  It states that the Court of First Instance, Superior Court of San Juan will be the primary and exclusive forum for filing causes of action under the act.  It will be interesting to watch the implementation of this law.

According to the Puerto Rican Office of Legislative Services, as of July 31, 2018, there has not yet been a formal English translation of the law.  The office stated that it will be approximately 5-6 months before an official English translation is made publically available.  In order to read the full text of the law, for purposes of this article, we used an online translation program and consulted a native Puerto Rican who is fluent in Spanish.

The Ninth Circuit Revives a False Claims Act Lawsuit Which Pleaded Collective Allegations

Wednesday, July 25th, 2018

On July 9, 2018, the Ninth Circuit in United States ex rel. Silingo v. Wellpoint, Inc., reversed in part, affirmed in part, and remanded the dismissal of a False Claims Act lawsuit against several Medicare Advantage Organizations. The Court held Wellpoint was mistakenly dismissed on the pleadings.

Under Medicare Advantage, private health insurance organizations provide Medicare benefits in exchange for a “capitated” fee – a fee paid per person regardless of actual care provided. Capitation rates are based largely on one’s “risk adjustment data,” and patients who have more medical issues are subjected to a higher capitation rate based on their related “risk adjustment data.” As a result, if these organizations “fall prey to greed,” they may fraudulently increase capitation rates to receive increased Medicare payments. United States ex rel. Silingo v. Wellpoint, Inc., No. 16-56400, 2018 U.S. App. LEXIS 18560 at *5 (9th Cir. July 9, 2018)

Medicare regulations require risk adjustment data be based on face-to-face visits validated through physician signatures that meet special signature requirements. Silingo claims MedXM used inappropriate software to alter the health records; the medical diagnoses were made by nurse practitioners and physician assistants who were not authorized to do so; and the diagnoses were not done face-to-face. Accordingly, Silingo advanced six theories of liability under the False Claims Act.

In this case, the plaintiff, Anita Silingo, alleged the defendant Medicare Advantage organizations retained Mobile Medical Examination Services, Inc., MedXM, to “fraudulently increase their capitation payments whose risk scores were set to expire and revert to the unadjusted Medicare beneficiary average.” Id. at 2. The panel held that the district court erred in dismissing charges of factually false claims, express false claims, and false records based on the plaintiff’s use of group allegations.

The Court held the relator in this case, Anita Silingo, successfully pleaded a “WHEEL conspiracy,” which involves a “single member or group (‘the HUB’) separately agreeing with two or more other members or groups (‘the SPOKES’)” as opposed to a “chain conspiracy” where “each person is responsible for a distinct act within the overall plan.” Id. *19. The Court explained that, MedXM, was the ‘HUB,’ and the Medicare Advantage organizations were the ‘SPOKES.’

Crime Can Pay if You Blow the Whistle

Wednesday, July 18th, 2018

The Commodity Futures Trading Commission (“CFTC”) is an independent U.S. federal agency established by the Commodity Futures Trading Commission Act of 1974. The CFTC’s Whistleblower Program was created by the Dodd-Frank Act, adding a section called “Commodity Whistleblower Incentives and Protection” to the Commodity Exchange Act. Whistleblowers are eligible for 10-30% of the monetary award the regulator collects if the information leads to an SEC enforcement action with sanctions over $1 million.

On July 12, 2018, the CFTC’s Whistleblower Program announced its largest award yet – $30 million to a J.P. Morgan Chase whistleblower – triple its previous largest award which was awarded in March 2016 and the fifth award under the Program. This $30 million award ties the third-highest award under the U.S. Securities and Exchange Commission’s (SEC) whistleblower program, awarded in September 2014. The $30 million CFTC award announcement comes just weeks after regulators moved to limit the size of these awards.

J. Christopher Giancarlo, Chairman of the CFTC, said that he “hopes that an award of this magnitude will incentivize whistleblowers to come forward with valuable information and provide notice to market participants that individuals are reporting quality information about violations of the Commodity Exchange Act.”

Christopher Ehrman, Director of the CFTC’s Whistleblower Office, said “the number of leads the office receives continues to grow each year by the hundreds. We hope that this award will continue to facilitate the upward momentum and success of the CFTC’s Whistleblower Program by attracting those with knowledge of wrongdoing to come forward.” Time will tell how effective this program will be in the future.

Tenth Circuit Holds Medical Judgment Not Always an Ironclad Defense in FCA Cases

Monday, July 16th, 2018

On July 9, 2018, the Tenth Circuit Court of Appeals, in U.S. ex rel. Polukoff v. St. Mark’s Hosp., 17-4014, — F. 3d —, 2018 WL 3340513 (10th Cir. July 9, 2018), was faced with an interesting question: whether a physician’s certification of medical necessity could be deemed “false” for purposes of the False Claims Act where no national or local governmental guidelines addressed the propriety or necessity of the physician’s specific services.

The case before the Court of Appeals involved allegations that a defendant physician, who had worked at two defendant hospitals, had systematically performed thousands of unnecessary heart surgeries for patients suffering from Patent Foramen Ovale (“PFO”), a heart condition. There was no specific guidance from Medicare addressing the physician’s practices. The District Court had granted the defendants motion to dismiss and concluded that the necessity of the doctor’s services was a matter of medical “opinion” or judgment and accordingly could not be “objectively false” under the FCA absent some regulation on point.  Id. at *5.  Relator’s appeal followed.

While there were no regulations addressing the practice at issue, the Complaint, and the Circuit Court in reviewing the sufficiency of the Complaint, looked to the American Heart Association’s and American Stroke Association’s guidelines addressing the appropriate surgical criteria for patients suffering from PFO. Both associations set forth that surgery should only be employed in certain cases of PFO. The physician was alleged to have routinely performed surgery on patient’s suffering from PFO in contravention of the AHA and ASA standards.

The Tenth Circuit recognized that “[o]ne factor that contractors consider when deciding whether a service is appropriate is whether it is [f]urnished in accordance with accepted standards of medical practice for the diagnosis or treatment of the patient’s condition or to improve the function of a malformed body member.” Id. at *2 (internal quotation marks omitted). The Court determined that even absent a federal regulation or guideline addressing the specific medical decision, the claims could be deemed false.

The Court set forth three reasons for its holding: “First, we read the FCA broadly. Second, the fact that an allegedly false statement constitutes the speaker’s opinion does not disqualify it from forming the basis of FCA liability. Third, claims for medically unnecessary treatment are actionable under the FCA.” Id. at *8 (internal quotation marks and citations omitted). The Court noted that the Medicare Program Integrity Manual sets forth a definition for “reasonable and necessary,” even if it does not address any particular medical service. Id. at *9. Accordingly, “a doctor’s certification to the government that a procedure is ‘reasonable and necessary’ is ‘false’ under the FCA if the procedure was not reasonable and necessary under the government’s definition of the phrase.” Id.

As to fears that the Court’s decision would needlessly expand liability among medical professions, the Court explained that while the Program Integrity Manual’s definition is broad, the Escobar decision made clear that the materiality and scienter requirements of the FCA will prevent liability from ballooning. The Tenth Circuit recognized that the District Court’s holding would have created an FCA loophole by permitting bad actors to run up medical bills by performing unnecessary services whenever the specific medical service’s necessity is not addressed by federal regulation.

Where Does Supreme Court Nominee Brett Kavanaugh Stand on the False Claims Act?

Tuesday, July 10th, 2018

On Monday night, D.C. Circuit Judge Brett Kavanaugh was selected by President Donald J. Trump to succeed Justice Anthony Kennedy on the United States Supreme Court.  The 53-year-old Kavanaugh has spent the last 12 years as a federal judge on the D.C. Circuit Court of Appeals where he authored over 300 opinions.

While many are rightfully concerned with the implications this appointment may have on the Second Amendment, abortion rights, the future of healthcare, and executive branch authority, this potential Supreme Court Justice may also make critical decisions related to the Federal False Claims Act.  To that end, I decided to review all of the FCA cases where Kavanaugh was a presiding Circuit Judge in the D.C. Circuit Court of Appeals over the last 12 years.

Since Kavanaugh’s appointment by President Bush, there have been 18 decisions related to the False Claims Act by D.C. Circuit Court of Appeals panels that included Kavanaugh.  Some of these decisions only make passing references or comparisons to the FCA statutes and a few were unpublished decisions related to legal affirmations that Relators may not proceed with FCA cases pro se.

You might be interested to know that of all the FCA-specific cases that I reviewed, all of the decisions by panels where Kavanaugh presided were either per curiam or unanimous decisions. This would imply that Kavanaugh did not have serious differences of opinion with his fellow Circuit Judges when it came to interpreting the False Claims Act.  Also of note, Kavanaugh has authored the opinion for only one of these FCA-specific cases.

Judge Kavanaugh authored In re Kellogg Brown & Root, Inc.,  410 U.S. App. D.C. 382, 756 F.3d 754 (2014), an opinion well-known for its application of the attorney-client privilege.  That case stemmed from United States ex rel. Barko v. Halliburton Co., where a Relator alleged that his employer, Kellogg Brown & Root (“KBR”) and certain subcontractors defrauded the U.S. Government by inflating costs and accepting kickbacks while administering military contracts in wartime Iraq.  During discovery, the Relator sought documents related to KBR’s prior internal investigation into the alleged fraud.  The District Court ruled that the attorney-client privilege did not apply, but KBR petitioned for a writ of mandamus and asked to vacate the production order.

The D.C. Circuit Court of Appeals and Kavanaugh granted mandamus relief.  Writing for the court, Kavanaugh held that the district court had erred and that KBR’s internal investigation was protected by the attorney-client privilege.  Kavanaugh further held that the Relator was able to pursue the facts underlying KBR’s investigation, but he was not entitled to KBR’s own investigative files.

Of interest, while that case dealt primarily with the attorney-client privilege in a qui tam action, Kavanaugh also sat on the panel that unanimously decided United States ex rel. Purcell v. MWI Corp., 420 U.S. App. D.C. 176, 807 F.3d 281 (2015).  The outcome of this case was considered to be a significant setback for the U.S. Department of Justice.

In United States ex rel. Purcell v. MWI Corp., the court reversed a multimillion-dollar jury verdict for the government and remanded the action to the district court with instructions to enter final judgment for MWI.  The Court of Appeals ruled that the Defendant manufacturer’s failure to report its sales agent’s commission did not violate the FCA.  In coming to this result, the court held there was not sufficient evidence that the manufacturer was “warned away” from its interpretation of the regulations.  In other words, the court held that the manufacturer could not have knowingly submitted false claims because it relied on a reasonable interpretation of an ambiguous term that the government left undefined.  The court also rejected a number of FCA arguments the Justice Department routinely makes in response to “ambiguous regulation” defenses.  This decision undoubtedly limited FCA liability.

Judge Kavanaugh is certainly familiar with the False Claims Act and the above cases may provide some insight as to his view on future cases that are brought before him.

Court Orders Ex-Postmaster to Pay over $353K for Stealing $9K from the Post Office under the FCA – Not Deemed an Excessive Fine

Wednesday, June 20th, 2018

A postmaster in South Dakota has been ordered to pay a civil judgment of $353,441.42 to the United States for defrauding the United States Postal Service (USPS). In United States v. Christeson, Judge Karen E. Schreier of the United States District Court for the District of South Dakota granted summary judgment in favor of the government, finding that the defendant intentionally and falsely certified that he was issuing refunds when in fact, he was keeping the money for his own purposes. Of note, the court found that under the False Claims Act, a $353K judgment was NOT grossly disproportional to the $8,970.71 that the post master stole from the USPS.

The Underlying Fraud Allegations

From 2010 to 2015, Craig Christeson served as the postmaster in two different South Dakota post offices. The USPS sells postage meters to permit customer to print out their own postage. When an envelope is put through a postage meter, but the resulting postage strip is not used, the resulting postage meter strip is said to be “spoiled.” When this occurs, a customer may bring the spoiled postage meter strip to the post office and receive a refund or credit.

As the postmaster, Christeson was responsible for verifying and issuing refunds to customers. Sometime in 2013, Christeson began falsely certifying that he had received spoiled postage meter strips from customers when he had not. He would then print a money order in the name of the fake customer, cash the money order at the post office, and keep the money. The USPS suffered damages totaling $8,970.71. Christeson pled guilty to the criminal charges against him and was sentenced to probation and to pay restitution. There was then a civil False Claims Act case brought against him.

The Court’s Findings on the Excessive Fines Clause

The court found that Christeson’s guilty plea in his criminal case included admissions that established the essential elements of an FCA cause of action. Accordingly, the court granted summary judgment. Turning to the damages calculation, the judge found that the proper damage award was the statutory treble damage figure ($8,970.71 x 3 = $26,912.13), plus the civil penalties (minimum penalty amount of $5,500 multiplied by 61 claims =$335,500), minus the amount paid in restitution ($8,970.71). Thus, the court found that Christeson must pay the government $353,441.42 under the FCA. Given that the amount calculated was approximately thirty-nine times the actual damages suffered by the USPS, the court performed an Excessive Fines Clause analysis. The court found that the judgment was not excessive, nor grossly disproportional because (1) the intentional fraud lasted for multiple years (2) the judgment sought is the minimum within statutory limits, and (3) each of Christeson’s sixty-one violations was an independent instance of intentional misconduct.

This case illustrates that the damages provisions of the False Claims Act can be onerous. It also serves as an example that it never pays to cheat the post office.

Public Disclosure Bar Does Not Preclude a Qui Tam Suit against Medtronic

Thursday, June 14th, 2018

In United States ex rel. Forney v. Medtronic, Inc., Judge Edward G. Smith of the United States District Court for the Eastern District of Pennsylvania ruled in favor of the Relator by denying medical device manufacturer, Medtronic’s request for summary judgment.  Judge Smith ruled that Relator Forney was not barred by the public disclosure bar because she is an original source that “materially added” to the publically disclosed allegations of fraud against Medtronic.

The Underlying Fraud Allegations

Relator Forney worked at Medtronic for 16 years until she was terminated in 2012.  She alleges that Medtronic routinely provided free services to individuals who made decisions about device purchases for the purposes of inducing these healthcare professionals to purchase Medtronic devices.  Her amended complaint alleges two main categories of inducements: (1) free device checks and device examinations performed on implanted pacemakers and (2) free practice management consulting during which providers were counseled on how to code for maximum reimbursements.  Relator Forney argues that these services are illegal kickbacks.

Medtronic Claims Public Disclosure Bar

In their motion for summary judgment, Medtronic contended that all of the Relator’s allegations were the subject of prior FCA claims and were therefor barred by the public disclosure bar.  Medtronic pointed to five different qui tam cases (Onwezen, Schroeder, Stokes, Doe, and Burns) and argued that they all qualified as valid prior public disclosures that described substantially the same fraud as the Relator’s amended complaint.

The Court’s Findings

After reviewing the five cases, the Court found that only two of them were valid public disclosures.  The Court determined that the other three cases did not qualify because these cases did not satisfy the government-involvement requirement.   According to Judge Smith, when the government declines to intervene in a qui tam case, it cannot be a party for the purposes of the government-involvement requirement.  Next, the Court turned to the issue of whether the two valid prior public disclosures (Onwezen and Schroeder) served as a bar to the relator’s claims.

The court held that while Relator Forney’s allegations were substantially similar to the other cases, she had knowledge that was independent of the disclosures, making her an original source.  The court found that she provided extensive details to the government that materially added to the factual background possessed by the government from the two prior cases.  Accordingly, the Court denied Medtronic’s motion to dismiss.

New York Doctor Sentenced to Four Years in $100 Million Lab Kickback Scheme

Friday, June 1st, 2018

The beat goes on…

According to a May 31, 2018 filing in New Jersey federal court, Dr. Thomas Savino of Staten Island was sentenced to four years imprisonment and three years’ supervised release, and was ordered to pay a $100,000 fine and forfeit $27,500 for his part in the Biodiagnostic Laboratory Services fraud. Evidence produced at trial last fall showed that Dr. Savino received at least $25,000 from the lab in exchange for his referrals, which generated approximately $375,000 for the lab. In October 2017, Savino was convicted of multiple offenses for his role in the kickback scheme, including conspiracy to violate the anti-kickback statute and wire fraud. All told, the scheme resulted in $100 million in false claims to government and private health care programs.

With Dr. Savino’s conviction and sentencing, the case has resulted in 53 convictions, including 38 doctors. Earlier this month, four former Biodiagnostic sales employees also received prison sentences ranging from 21 to 41 months, and a fifth ex-employee received three-years’ probation for their part in the kickback scheme.

Back in June of 2016, Biodiagnostic pled guilty and was required to forfeit its assets. In December 2017, the founder of the lab company, a former nurse, testified during the government’s prosecution. He described how he built a $150 million business from scratch using a marketing plan built primarily on bribing doctors to use his lab. The physicians involved were bribed with luxury automobiles, impossible-to-get concert tickets, and trips to the Caribbean and the Super Bowl in private jets, as well as prostitutes and strippers at high-end gentlemen’s clubs. Although 40 physicians were charged, the lab owner testified that he paid off more than 100 physicians to keep referrals flowing to his lab.

The scheme came to light when one of the doctors receiving kickbacks gave an old iphone to a girlfriend. After their breakup, she discovered texts revealing the bribe scheme and provided them to authorities.