Healthcare Fraud Tops DOJ’s Annual False Claims Act Report – Again!

The Department of Justice (DOJ) released a report on February 7 detailing the settlements and judgments it obtained under the federal False Claims Act (FCA) for the fiscal year (FY) ending September 30, 2022. The statement provides a wealth of information about the government’s fight against federal program fraud, especially fraud relating to federal health insurance programs such as Medicare, Medicaid, and TRICARE, the health insurance program for active-duty and retired uniformed services members and their families.

Other frauds are also highlighted in depth in the DOJ’s report, available at https://www.justice.gov/opa/pr/false-claims-act-settlements-and-judgments-exceed-2-billion-fiscal-year-2022, including fraud relating to the government’s purchase of goods and services in connection with military and similar programs, cyber fraud, and small business contracting fraud – but healthcare fraud remains the predominant problem.

Although the DOJ’s report focuses on federal programs, private insurers should take note of the newly released report because the latest fraud schemes faced by the federal government are surely similar to the evolving schemes that almost every insurer faces. Accordingly, after a brief overview of the DOJ’s report, this column explores the healthcare-related information in more depth and then discusses how this helps to understand the federal government’s FCA enforcement priorities, as well as the priorities that private insurers should be contemplating.

Overview

The report opens by declaring that the DOJ recovered, through settlements and judgments, more than $2.2 billion in the period covered by the report. That makes fiscal year 2022 the 14th consecutive year in which the government’s FCA recoveries exceeded $2 billion. See https://www.justice.gov/opa/press-release/file/1567691/download.

It should be noted that the $2.2 billion was down from the total recovered in FY 2021 ($5.7 billion), which saw a number of particularly large settlements. However, one important figure was larger for FY 2022 than for FY 2021 and for virtually all prior years:  In FY 2022, the government and whistleblowers were party to 351 settlements and judgments, the second highest number of settlements and judgments ever in a single year.

An additional striking statistic from the DOJ’s 2022 report is that of the more than $2.2 billion in FCA settlements and judgments recovered during FY 2022, over $1.7 billion (or nearly 80 percent) related to matters that involved the healthcare industry, including drug and medical device manufacturers, durable medical equipment, home health and managed care providers, hospitals, pharmacies, hospice organizations, and physicians. The amounts included in the $1.7 billion reflect recoveries arising only from federal losses; in many instances, additional amounts were recovered for state Medicaid programs.

The report also emphasizes that whistleblower, or qui tam, actions comprised a significant percentage of the FCA cases in FY 2022. Specifically, whistleblowers filed 652 qui tam suits last year, and the DOJ reported settlements and judgments exceeding $1.9 billion in these and earlier-filed suits. Another eye opening statistic: Whistleblowers received over $488 million under the FCA’s qui tam provisions in FY 2022, about twice as much as they did in FY 2021.

Unnecessary Services/Substandard Care

An important category of healthcare fraud discussed in the report relates to matters in which providers allegedly billed federal healthcare programs for medically unnecessary services, including allegedly unnecessary neurosurgeries (a case that Providence Health & Services Washington, a healthcare and hospital system operating in seven western U.S. states, settled for $22.7 million), allegedly unnecessary urine drug testing (a case that MD Spine Solutions LLC and two of its owners settled for up to $16 million), and allegedly unnecessary psychological, genetic, and drug testing (a case that Physician Partners of America LLC, its founder, its former chief medical officer, and certain of its affiliated entities settled for $24.5 million).

In an example of a case involving alleged substandard care, the DOJ asserted claims under the FCA against American Health Foundation, among others, alleging that between 2016 and 2018, three American Health nursing homes provided grossly substandard services that failed to meet required standards of care in various ways, including by failing to follow appropriate infection control protocols and not maintaining adequate staffing levels.

Unlawful Kickbacks

The DOJ references in its report a number of cases involving allegedly unlawful kickbacks. For example, last May, the DOJ filed a complaint against six physicians, alleging that they received thousands of dollars in kickbacks in return for their referrals of laboratory testing in violation of the federal Anti-Kickback Statute and Stark Law.

Then, in December, the DOJ filed suit against a chiropractor, 15 office-based labs primarily owned by the chiropractor, and five affiliated companies owned by the chiropractor, alleging that the defendants offered physicians the opportunity to invest in the labs to induce them to refer their Medicare and TRICARE patients to the labs for the treatment of peripheral arterial disease.

The DOJ’s report also notes that pharmaceutical company Biogen Inc. paid $843.8 million to resolve allegations that it offered and paid kickbacks, including in the form of speaker honoraria, speaker training fees, consulting fees, and meals, to physicians who spoke at or who attended Biogen programs in connection with three Biogen drugs. Other settlements highlighted in the DOJ’s report involving alleged kickbacks included settlements with durable medical equipment manufacturer Philips RS North America, LLC, formerly Respironics, Inc. ($24.75 million); Flower Mound Hospital Partners LLC ($18.2 million); and Kaléo Inc. ($12.7 million). Still other recoveries relating to alleged kickback violations involved a clinical laboratory (Metric Lab Services, LLC, $5.7 million); a medical device company (Arthrex, Inc., $16 million); and physician practice groups (Ambulatory Anesthesia of Atlanta, LLC, and Northside Anesthesiology Consultants LLC, $28 million).

Medicaid Fraud and Abuse

The DOJ report also explores the substantial fraud and abuse in the Medicaid program. Here, the report discusses the settlement the government reached with pharmaceutical company Mallinckrodt ARD LLC, previously known as Questcor Pharmaceuticals Inc. The company paid $260 million to resolve separate allegations relating to its drug H.P. Acthar Gel, which is approved to treat, among other things, acute exacerbations of multiple sclerosis and infantile spasms. The government alleged that the company knowingly underpaid rebates to the Medicaid program by improperly designating Acthar as a “new drug” as of 2013, as opposed to a preexisting drug for which Mallinckrodt had significantly raised the price in earlier years.

In another Medicaid case, Gold Coast Health Plan, a county-organized health system in California, and three of its providers paid a total of $70.7 million to resolve claims that they knowingly submitted or caused the submission of false claims to California’s Medicaid program in connection with the “Adult Expansion” population that was created by the Patient Protection and Affordable Care Act. The federal government alleged that the payments were not for “allowed medical expenses” under Gold Coast’s contract with the state, were pre-determined amounts that did not reflect fair market value, were duplicative of services already required to be rendered, and were unlawful gifts of public funds in violation of the state constitution.

Medicare Advantage Matters

The DOJ report notes that the government pursued cases alleging that organizations participating in the Medicare Advantage (or Medicare Part C) program knowingly submitted or caused the submission of inaccurate information or knowingly failed to correct inaccurate information about the health status of beneficiaries enrolled in their plans to increase reimbursement. For example, in October, the DOJ intervened in one case against Cigna Corporation, alleging that Cigna submitted false and invalid patient diagnosis codes to artificially inflate the payments it received for providing insurance coverage to its Medicare Advantage plan members.

Drug Pricing

Allegations relating to drug pricing also feature in the healthcare fraud section of the DOJ’s report. However, the only example referenced in the report arose in November 2021 when the DOJ sued Professional Compounding Centers of America Inc., a company that sells active pharmaceutical ingredients and other products and services to compounding pharmacies. The government’s complaint alleged that the company reported fraudulent and inflated average wholesale prices for its ingredients that bore no relationship to the actual prices at which it sold those ingredients to its pharmacy customers, thereby causing those pharmacies to submit inflated compound prescription claims to TRICARE.

COVID-19

As is well recognized, the DOJ’s efforts in the COVID-19 area include the pursuit of cases involving improper payments under the Paycheck Protection Program (PPP), which was enacted to provide loans guaranteed by the U.S. Small Business Administration (SBA) to eligible small businesses for payroll, rent, utility payments, and other business-related costs. In that regard, the DOJ has pursued borrowers that improperly received duplicate or inflated PPP loans or that otherwise were not eligible to receive any PPP loan. As noted in the DOJ’s report, in FY 2022, the government resolved 35 FCA matters, recovering over $6.8 million and avoiding more than $1.5 million in losses for the SBA tied to federal guarantees on improper loans.

The COVID-19 recoveries also include a healthcare-related case. Here, the DOJ reached a $1.75 million settlement with MorseLife Health System Inc., a Florida-entity that oversees a nursing home and an assisted living facility, to resolve allegations that it facilitated COVID-19 vaccinations for hundreds of individuals ineligible to participate in the Centers for Disease Control and Prevention’s Pharmacy Partnership for Long-Term Care Program. Although that program was specifically designed to vaccinate long term care residents when doses of the COVID-19 vaccine were in limited supply, MorseLife was alleged to have arranged vaccines for members of MorseLife’s board of directors and individuals whom MorseLife targeted for donations to its private foundation.

Conclusion

The FCA remains one of the most important tools the federal government has to tackle fraud. FY 2022 saw more new cases (948) filed than ever before, a trend that is likely to continue as the government seeks to root out fraud and corruption. By the same token, another trend that certainly will continue this year is the growth of cases brought by whistleblowers. As noted above, whistleblowers filed 652 actions during FY 2022, averaging more than a dozen new cases per week.

Moreover, as reflected by the fact that approximately 80 percent of settlements and judgments discussed in the DOJ’s FY 2022 report came from the healthcare industry, it is clear that healthcare fraud remains and undoubtedly will continue to be a leading source of FCA settlements and judgments.

Given that a section of the DOJ’s report was entitled, “Holding Individuals Accountable,” and that the DOJ specifically indicated its intent to rely on the FCA “to deter and redress fraud by individuals” in addition to corporations, it also is clear that the government intends to expand its efforts to charge individuals, including corporate officers and licensed professionals, in more and more FCA cases.

The bottom line is that there is a compelling need for the federal government to bring an increasing number of civil fraud actions under the FCA, with a particular focus on healthcare fraud. Based on the DOJ’s report, there is little doubt that private insurers face a similar wave of insurance fraud and that private civil fraud actions likewise will continue to increase.

Reprinted with permission from the March 2, 2023, issue of the New York Law Journal^©, ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.