Archive for the ‘Investigations’ Category

PharMerica to Pay $31.5 Million to Settle False Claims Act and Controlled Substances Act Lawsuit

Tuesday, May 26th, 2015

The United States Department of Justice (“DOJ”) recently announced that PharMerica Corp. will pay $31.5 million, including more than $4 million to a whistleblower, to settle alleged violations of the Controlled Substances Act (“CSA”) and False Claims Act (“FCA”) related to the company’s improper dispensing of narcotics and submission of false claims to Medicare Part D.

PharMerica is a long-term care pharmacy that dispenses drugs to residents in nursing homes and other long-term care facilities.  The government alleged that PharMerica dispensed controlled substances listed in Schedule II of the CSA, including oxycodone and morphine, in non-emergency situations based solely on requests from the long-term facility rather than a valid prescription from a practitioner.  Schedule II narcotics were thus allegedly dispensed without physician confirmation that they were necessary and should be administered to the resident.  Under the settlement, PharMerica has agreed to pay $8 million to resolve these allegations.

The complaint also alleged that PharMerica violated the FCA by knowingly causing the submission of false claims to Medicare Part D for these improperly dispensed Schedule II drugs.  The FCA imposes treble damages and penalties for the knowing submission of false claims for federal funds.  PharMerica has agreed to pay $23.5 million to resolve its alleged FCA violations.

The FCA claims resolved by Thursday’s settlement were originally brought by Jennifer Denk, a pharmacist formerly employed by PharMerica, under the whistleblower provisions of the act, which authorize private parties to sue on behalf of the United States and to receive a portion of any recovery.  The act permits the United States to intervene and take over the lawsuit, as it did in this case with respect to some of Ms. Denk’s allegations.  Ms. Denk will receive $4.3 million as her share of the settlement.

PharMerica’s agreement with the United States includes not only a settlement with DOJ but a five-year Corporate Integrity Agreement with the Department of Health and Human Services – Office of the Inspector General as well.  The Corporate Integrity Agreement calls for the appointment of an official compliance officer, the establishment of a compliance committee, and the submission of federal health care program claims for independent review for the next five years, among other reforms.

US Settles False Claims Act Allegations Against ev3 for $1.25 Million

Monday, February 9th, 2015

The Justice Department announced that it has reached a $1.25 million settlement with ev3, a medical device manufacturer base in in Minnesota.   Ev3 formerly was known as Fox Hollow Technologies. A lawsuit filed under the whistleblower provision of the False Claims Act alleges that between 2006-2007, Fox Hollow induced 12 hospitals in 9 states to admit patients who were undergoing elective atherectomy procedures.   This minimally invasive procedure removes atherosclerosis and opens up coronary arteries, thereby increasing blood flow.   It is usually performed on an outpatient basis.  At that time, Fox Hollow sold the Silver Hawk Plaque Excision System, a device that was used in these procedures.  In order to increase hospital purchases of this device, Fox Hollow convinced the 12 hospitals to admit the atherectomy patients.  The hospitals subsequently submitted claims for unnecessary admissions and received higher reimbursements from Medicare for procedures that should have been performed in an outpatient facility. For more information, please click here.

$6 Million Settlement in Bone Growth Stimulators False Claims Act Suit

Tuesday, November 4th, 2014

In another win for the HEAT (Health Care Fraud Prevention and Enforcement Action Team) initiative, EBI, LLC, a medical device company in Parsippany, New Jersey, doing business as Biomet Spine and Bone Healing Technologies and Biomet, Inc., will pay $6 million to resolve allegations of violations of the federal Anti-Kickback Statute. Yu Yue, a former product manager for EBI, kicked off the investigation when she filed a qui tam suit in federal court in New Jersey. Yue’s share of the $6 million recovery has not yet been determined. The United States alleges that EBI paid staff at doctor’s offices through personal service agreements to influence doctors to order its bone growth simulator, which is used to repair slow to heal fractures. The United States determined the personal services agreements with physicians’ staff violated the Anti-Kickback Act, resulting in false billing to federal healthcare programs. Additionally, the $6 million settlement resolves allegations that EBI received federal reimbursement for bone growth simulators that had been refurbished.

The investigation was coordinated by the Commercial Litigation Branch of the Civil Division of the Department of Justice, the U.S. Attorney’s Office for the District of Massachusetts, HHS-OIG, the U.S. Postal Service Office of Inspector General, the Defense Criminal Investigative Service, the U.S. Department of Veterans Affairs, Office of the Inspector General and the U.S. Food and Drug Administration, Office of Criminal Investigation.

For more information, please click here.

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.

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.

$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.

Corrupt Officials and Contractors are Charged with Taking “Time and a Half” in connection with New York’s Automated Payroll System

Wednesday, June 29th, 2011

The Wall Street Journal reports that the development of New York City’s automated payroll system – known as CityTime – was the subject of significant fraudulent kickbacks.  The US Attorney recently announced indictments of two New Jersey executives accused of paying off contractors involving over $600 million in city funds, and over $40 million in kickbacks.  In total, 11 individuals have been charged with the fraud.  The alleged corruption has proved to be an embarrassment to Mayor Michael Bloomberg, and the project itself has been subject to cost overruns, which has inflated the total cost from $68 million initially to over $700 million today. 

For more information see:

Father-Son Duo Indicted in Multimillion-Dollar Military Contract Bribery Scheme

Friday, June 3rd, 2011

Two American businessmen, George H. Lee and his son, Justin W. Lee, have been charged with giving U.S. Army officers airline tickets, vacations, and over $1 million in bribes to secure multimillion-dollar contracts to provide supplies to the U.S. military and to help rebuild Iraq.  Their indictment was unsealed on May 27, 2011.

The Lees join a group of almost 60 contractors and military officers to face criminal charges related to misconduct in obtaining a variety of government contracts in the early part of the Iraq war.  Their involvement in the Iraqi contracting scandal has been known for some time, as their company, Lee Dynamics International, has been barred from doing business with the federal government since July 2007.

Documents filed in the criminal proceeding against George and Justin Lee allege that the Lees provided $225,000 in bribes to one unnamed Army Major (identified as “Person One”) in exchange for the officer directing over $14 million in contracts to Lee Dynamics.  The description of “Person One” in the indictment closely matches that of Maj. Gloria D. Davis, who shot and killed herself in Baghdad in December 2006 after admitting to investigators that she had taken the $225,000 in bribes from the Lees’ company.

The indictment also ties the Lees to another corrupt Army officer, Maj. John Cockerham, who was recently sentenced to 17 years in prison for taking over $9.6 million in bribes while working at a contracting office in Kuwait.  The government has charged George and Justin Lee with providing at least $1 million to Major Cockerham in exchange for being funneled contracts to provide American troops with bottled water, bunk beds, and mattresses.

For more information see:

Diagnostic Sleep Companies to Pay $650,000 to Settle False Claims Act Suit

Tuesday, May 31st, 2011

Three related companies, Areté Sleep LLC, Areté Sleep Therapy LLC and Areté Holdings LLC, have agreed to pay the United States Department of Justice $650,000 to settle claims that the Areté companies defrauded Medicare in violation of the False Claims Act.  The settlement resolves claims that Areté submitted false claims to Medicare for diagnostic sleep tests performed by technicians lacking the licenses or certifications required by Medicare’s rules and regulations.  The settlement also resolves connected allegations that Areté submitted false claims for medical devices that were prescribed as a result of the technicians’ sleep tests.

Areté, which filed for bankruptcy in January 2011, agreed that the $650,000 settlement will be paid out of the sale of its assets under the supervision of the bankruptcy court.  Relator Amanda Drews, who blew the whistle on Areté’s fraud, will receive $107,250 as her share of the settlement for her efforts in uncovering the false claims to Medicare.

For more information see: USDOJ: Arete