False Claims Act Cases Poised to Jump Now and for Years to Come

March 4, 2021 | Evan H. Krinick | Insurance Fraud

The report detailing new filings and recoveries under the False Claims Act (FCA) during the 2020 fiscal year that was just released by the U.S. Department of Justice (DOJ) suggests, at first glance, a diminished role for one of the federal government’s strongest anti-fraud tools. Delving more deeply into the details, however, demonstrates the continuing vitality of the FCA, especially when it concerns fraud against federal health insurance programs.

Indeed, given the opportunities for fraud stemming from the government programs that already have been enacted and that are likely to be enacted to combat COVID-19, and given recent statements by Washington officials promising more enforcement actions, one thing becomes abundantly clear: This year – and many years to come – undoubtedly will see a remarkably high number of whistleblower lawsuits and government-initiated actions filed under the FCA in an effort to clamp down on fraud and abuse.

Health Insurance Fraud

Several weeks ago, in mid-January, the DOJ released its annual FCA report, available at https://www.justice.gov/opa/pr/justice-department-recovers-over-22-billion-false-claims-act-cases-fiscal-year-2020.

The headline-making news: The DOJ reported that it obtained over $2.2 billion in settlements and judgments from civil cases involving allegations of fraud and false claims against the government in the fiscal year ending September 30, 2020. Of the $2.2 billion of recoveries, over $1.6 billion arose from lawsuits filed under the FCA’s qui tam provisions. During the same period, the federal government paid out $309 million to individuals who exposed fraud and false claims by filing qui tam actions.

Moreover, of the more than $2.2 billion recovered by the DOJ, over $1.8 billion related to matters that involved health insurance and the health care industry, including drug and medical device manufacturers, managed care providers, hospitals, pharmacies, hospice organizations, laboratories, and physicians. Notably, the amounts included in the $1.8 billion reflected only losses to federal health insurance programs such as Medicare, Medicaid, and TRICARE, the health care program for service members and their families, and not the tens of millions of dollars recovered for state Medicaid programs.

The DOJ report observed that the largest recoveries in the past fiscal year came from the drug industry. For example, following years of litigation and multiple unsuccessful attempts to have the government’s claims dismissed, Novartis Pharmaceuticals Corporation paid over $591 million to resolve claims that it paid kickbacks to doctors to induce them to prescribe its drugs. The DOJ asserted, among other things, that Novartis sales representatives, on the instruction of their managers, selected high-volume prescribers to serve as paid “speakers” to induce the prescribers to write Novartis prescriptions. See https://www.justice.gov/opa/pr/novartis-pays-over-642-million-settle-allegations-improper-payments-patients-and-physicians.

In fiscal year 2020, the DOJ continued to investigate what it characterized as efforts by drug manufacturers to illegally fund co-payments of Medicare patients. Two pharmaceutical manufacturers – Novartis and Gilead Sciences, Inc. – paid a combined total of over $148 million to resolve allegations that they illegally paid patient copays for their own drugs through purportedly independent foundations that the companies treated as mere conduits for these payments. See https://www.justice.gov/usao-ma/pr/novartis-agrees-pay-over-51-million-resolve-allegations-it-paid-kickbacks-through-co-pay; https://www.justice.gov/opa/pr/gilead-agrees-pay-97-million-resolve-alleged-false-claims-act-liability-paying-kickbacks.

In addition, four purportedly independent foundations paid a total of $13 million to resolve allegations of their involvement in alleged kickback schemes. See https://www.justice.gov/usao-ma/pr/foundations-resolve-allegations-enabling-pharmaceutical-companies-pay-kickbacks-medicare; https://www.justice.gov/usao-ma/pr/third-foundation-resolves-allegations-it-conspired-pharmaceutical-companies-pay-kickbacks; https://www.justice.gov/usao-ma/pr/fourth-foundation-resolves-allegations-it-conspired-pharmaceutical-companies-pay.

Alleged opioid-related fraud schemes continued to draw the attention of the DOJ. For example, Practice Fusion, Inc., a San Francisco-based health information technology developer, agreed to pay a total of $145 million to resolve criminal and civil investigations relating to its electronic health records (EHR) software. As part of the criminal resolution, in which Practice Fusion agreed to pay over $26 million, the company admitted that it had solicited and received kickbacks from a major opioid company in exchange for using its EHR software to influence physician prescribing of opioid pain medications. In separate civil settlements, Practice Fusion agreed to pay approximately $118.6 million to the federal government and states to resolve allegations that it accepted kickbacks from pharmaceutical companies and also caused its users to submit false claims for federal incentive payments by misrepresenting the capabilities of its EHR software. See https://www.justice.gov/usao-vt/pr/electronic-health-records-vendor-pay-largest-criminal-fine-vermont-history-and-total-145.

In addition to FCA cases involving alleged improper payments by drug manufacturers, the DOJ resolved cases involving allegations of willful solicitation or payment of illegal remuneration to induce the purchase of a good or service paid for by a federal health care program. For example, ResMed Corp., a durable medical equipment manufacturer, agreed to pay more than $37 million to resolve allegations that it paid kickbacks to suppliers, sleep labs, and other health care providers. See https://www.justice.gov/opa/pr/resmed-corp-pay-united-states-375-million-allegedly-causing-false-claims-related-sale. In another case, the Oklahoma Center for Orthopaedic and Multi-Specialty Surgery, a specialty hospital in Oklahoma City, its part-owner and management company, an orthopedic physician group, and two physicians agreed to pay a total of over $72 million to resolve allegations that the hospital provided improper remuneration to the physician group in exchange for patient referrals. See https://www.justice.gov/opa/pr/oklahoma-city-hospital-management-company-and-physician-group-pay-723-million-settle-federal. And UTC Laboratories Inc. (RenRX) agreed to pay $41.6 million, and its three principals agreed to pay $1 million, to resolve allegations that they paid kickbacks in exchange for laboratory referrals for pharmacogenetic testing and for furnishing and billing for tests that were not medically necessary. See https://www.justice.gov/opa/pr/genetic-testing-company-and-three-principals-agree-pay-426-million-resolve-kickback-and.

Another form of health care fraud occurs when providers bill the federal health insurance programs for medically unnecessary services or for services not rendered. During the 2020 fiscal year, Universal Health Services paid $117 million to resolve allegations that its inpatient psychiatric hospitals and residential psychiatric and behavioral treatment facilities knowingly submitted false claims for inpatient behavioral health services that were not reasonable or medically necessary or failed to provide adequate and appropriate services to its patients. See https://www.justice.gov/usao-edpa/pr/universal-health-services-inc-pay-117-million-settle-false-claims-act-allegations. Additionally, Logan Laboratories, Inc., Tampa Pain Relief Centers, Inc., and two of their former executives agreed to pay a total of $41 million to resolve allegations that they automatically ordered both presumptive and definitive urine drug tests for all patients at every visit, without any individualized determination that either test was medically necessary for the particular patients for whom the tests were ordered. See https://www.justice.gov/opa/pr/reference-laboratory-pain-clinic-and-two-individuals-agree-pay-41-million-resolve-allegations.

Individual Liability

As noted above, a number of corporate settlements required individuals, particularly senior executives or owners, to pay a portion of a settlement amount. There were a number of other examples of recoveries involving individuals cited in the DOJ report.

For instance, following a $260 million settlement with Health Management Associates (HMA), the DOJ negotiated a $4.25 million civil settlement with Glenn A. Kline, D.O., and his surgical practice, Community Surgical Associates, to resolve civil allegations relating to allegedly illegal kickbacks received from two hospitals formerly operated by HMA. According to the DOJ, to secure Kline’s referrals, HMA allegedly paid Kline in excess of the fair market value of his services and allegedly paid additional amounts to benefit his surgical practice. These funding arrangements allegedly were structured to disguise payments that were, according to the DOJ, payments for patient referrals rather than for legitimate services. See https://www.justice.gov/usao-edpa/pr/lancaster-surgeon-pay-425-million-resolve-false-billing-and-kickback-claims.

Another case stemmed from the DOJ’s litigation against SpineFrontier, Inc. Here, six orthopedic surgeons agreed to pay a total of over $3.25 million to resolve allegations that they accepted kickbacks in the form of sham consulting fees from SpineFrontier and a third-party entity, Impartial Medical Experts, LLC, which was owned and controlled by the company’s founder and chief executive officer. The consulting payments were allegedly based on the number of times the surgeons used a SpineFrontier product in a given month, as opposed to the actual time they spent consulting. As part of the settlement agreements, each physician admitted to reporting and being paid for consulting hours in excess of actual or documented consulting time. See https://www.justice.gov/usao-ma/pr/surgeon-agrees-pay-175-million-resolve-allegations-he-accepted-kickbacks-spinefrontier.

In yet another example, Texas doctor Bibi Sattar and her medical practice paid $210,000 to resolve allegations that she accepted kickbacks in the form of sham laboratory processing and handling fees in exchange for referring laboratory tests to True Health Diagnostics, LLC. See https://www.justice.gov/usao-edtx/pr/north-texas-doctor-pay-210000-settle-false-claims-act-allegations-accepting-illegal.

Comparison to Other Years

All of this likely sounds quite impressive, quite encouraging for those who worry about fraud, and quite concerning to those considering committing fraud. But many of the key statistics cited in the DOJ report pale in comparison to prior years. See https://www.justice.gov/opa/press-release/file/1233201/download.

For example, the $2.2 billion in total fiscal year 2020 recoveries continued the almost continuous decline in recoveries since 2016 and was the lowest total since 2008. For purposes of comparison, note that the total recoveries in fiscal year 2014 were $6.2 billion – nearly triple 2020’s total.

Similarly, the $1.6 billion in qui tam recoveries in 2020 and the $309 million paid to qui tam relators also were the lowest totals since 2008 and 2009, respectively.

The Future

One striking change from prior years, however, is in the number of FCA cases initiated by the government in the 2020 fiscal year: 250. That was the most in 25 years, and suggests significant growth in the government’s interest in filing its own FCA actions.

There is more to indicate that this year – and at least the near future – will be filled with FCA lawsuits.

For example, Senator Chuck Grassley (R-Iowa), who led Congress to strengthen the FCA in 1986, told a recent qui tam conference that the FCA “has never been more important than it is right now.” Grassley observed that the “massive increases in government spending to address the COVID crisis have created new opportunities for fraudsters trying to cheat the government and steal the people’s money. As history has shown all of us, fraudsters thrive during times of crises and large-scale government spending.” See https://www.govexec.com/management/2021/02/grassley-says-pandemic-makes-anti-fraud-law-more-important-ever/172114/.

The highest level of the DOJ recently expressed the same sentiments. Brian Boynton, newly appointed acting assistant attorney general for the DOJ’s civil division, stated that the FCA “will play a very significant role in the coming years as the government grapples with the consequences of [the COVID-19] pandemic.” He added that the circumstances of the current pandemic “may be novel, but the inevitable fraud schemes that it will produce will, in many cases, resemble misconduct that the [FCA] has long been used to address.” See https://www.justice.gov/opa/speech/acting-assistant-attorney-general-brian-m-boynton-delivers-remarks-federal-bar.

All of this leads to one inexorable conclusion. With the opportunities growing to defraud government insurance programs, especially in the health care field, and with the government prioritizing the prevention and punishment of fraud and abuse, FCA actions are destined to surge.

Reprinted with permission from the March 5, 2021, issue of the New York Law Journal©, ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.

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