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CA Inc. to Pay $45 Million for Alleged False Claims on Government-Wide Information Technology Contract

CA Inc. (CA) has agreed to pay $45 million to resolve allegations under the False Claims Act that it made false statements and claims in the negotiation and administration of a General Services Administration (GSA) contract, the Department of Justice recently announced.  CA is an information technology management software and services company headquartered in New York, New York.

“Today’s settlement demonstrates our continuing vigilance to ensure that contractors deal forthrightly with federal agencies when seeking taxpayer funds,” said Acting Assistant Attorney General Chad A. Readler of the Justice Department’s Civil Division.  “We will take action against contractors who withhold information and cause the government to pay more than it should for commercially available items.”

The settlement resolves allegations related to a GSA contract awarded to CA for software licenses and maintenance services.  Under Multiple Award Schedule (MAS) contracts like this one, GSA pre-negotiates prices and contract terms for subsequent orders by federal agencies.  At the time of CA’s contract, contractors were required to fully and accurately disclose to GSA how they conducted business in the commercial marketplace so that GSA could use that information to negotiate a fair price for government agencies using the GSA contract to purchase CA products and services.  The contract also contained a price reduction clause that set forth when the contractor had to reduce the prices it charged to the government if its prices to commercial customers improved.

This settlement resolves allegations that CA did not fully and accurately disclose its discounting practices to GSA contracting officers.  Specifically, the agreement resolves claims that CA provided false information about the discounts it gave commercial customers for its software licenses and maintenance services at the time the contract was negotiated in 2002 and was extended in 2007 and 2009. Additionally, the settlement resolves claims that CA violated the price reduction clause in the contract by not providing government customers with additional discounts when commercial discounts improved.

“This case illustrates that we will vigorously pursue federal contractors who fail to negotiate and perform their obligations with transparency and fairness,” said U.S. Attorney Channing D. Phillips for the District of Columbia.  “Together with our federal partners, we will zealously press such claims in court to recover what is owed to the American taxpayer.”

“GSA contractors must be honest and forthcoming when doing business with the federal government,” said GSA Inspector General Carol Fortine Ochoa.  “American taxpayers deserve a fair deal.”

The allegations against CA were first made in a whistleblower lawsuit filed under the False Claims Act by Dani Shemesh, a former employee of CA Software Israel LTD.  Under the False Claims Act, private individuals can sue on behalf of the government and share in any recovery.  The False Claims Act also allows the government to intervene and take over the action, as it did, in part, in this case.  Shemesh’s share of the settlement is $10.195 million.

This case was handled by the Civil Division’s Commercial Litigation Branch, the U.S. Attorney’s Office for the District of Columbia, and the GSA Office of Inspector General.

The lawsuit is captioned United States ex rel. Shemesh v. CA, Inc., No. 09-1600 (D.D.C.) The claims resolved by the settlement are allegations only; there has been no determination of liability.

Sierra Nevada Corporation Pays $14.9 Million to Settle Allegations of Improper Contract Billings

Sierra Nevada Corporation (SNC) has paid $14.9 million to resolve allegations that it violated the federal False Claims Act when it knowingly misclassified certain costs, resulting in inflated overhead rates paid to SNC pursuant to various government contracts, U.S. Attorney Phillip A. Talbert announced on Wednesday.

SNC is a Nevada corporation that provides services to agencies of the United States pursuant to various defense and space contracts. The improper charges resolved here resulted from SNC misclassifying certain direct contract costs and Manufacturing and Production Engineering costs as Independent Research and Development (IR&D) costs, and charging certain IR&D costs in the wrong cost accounting period. This improper characterization of costs artificially inflated General & Administrative overhead rates paid to SNC across its federal contracts and resulted in overcharging federal agencies. The government relies on contractors to accurately classify both the nature and timing of contract costs in order to properly calculate overhead rates and appropriately pay for work on government programs.

“This settlement illustrates our commitment to protect the integrity of federal procurement contracting,” said U.S. Attorney Phillip A. Talbert. “We will hold federal contractors to the highest standards of accuracy to ensure that federal agencies are not overcharged for products and services.”

“The integrity of our procurement systems is required by the American public, who demand that tax dollars are used responsibly,” said Chris Hendrickson, Special Agent in Charge, Defense Criminal Investigative Service (DCIS), Western Field Office. “DCIS and our law enforcement partners are committed to protecting precious resources needed to support our soldiers, sailors, airmen and Marines.”

This case was handled by Assistant U.S. Attorney Catherine J. Swann, with assistance from the Defense Contract Management Agency, the Defense Contract Audit Agency, the National Aeronautics and Space Administration, and DCIS. The claims settled by this agreement are allegations only, and there has been no determination of liability.

Healthcare Service Provider to Pay $60 Million to Settle Medicare and Medicaid False Claims Act Allegations

A major U.S. hospital service provider, TeamHealth Holdings, as successor in interest to IPC Healthcare Inc., f/k/a IPC The Hospitalists Inc. (IPC), has agreed to resolve allegations that IPC violated the False Claims Act by billing Medicare, Medicaid, the Defense Health Agency and the Federal Employees Health Benefits Program for higher and more expensive levels of medical service than were actually performed (a practice known as “up-coding”), the Department of Justice announced on Monday. Under the settlement agreement, TeamHealth has agreed to pay $60 million, plus interest.

“This settlement reflects our ongoing commitment to ensure that health care providers appropriately bill government programs vital to patient health care,” said Acting Assistant Attorney General Chad A. Readler of the Justice Department’s Civil Division.

The government contended that IPC knowingly and systematically encouraged false billings by its hospitalists, who are medical professionals whose primary focus is the medical care of hospitalized patients. Specifically, the government alleged that IPC encouraged its hospitalists to bill for a higher level of service than actually provided. IPC’s scheme to improperly maximize billings allegedly included corporate pressure on hospitalists with lower billing levels to “catch up” to their peers.

“Medical providers who fraudulently seek payments to which they are not entitled will be held accountable,” said U.S. Attorney Zachary T. Fardon for the Northern District of Illinois. “False documentation of treatment is not just flawed patient care; it is illegal.”

As part of the settlement, TeamHealth entered into a five-year Corporate Integrity Agreement (CIA) with the U.S. Department of Health and Human Services Office of Inspector General (HHS-OIG) covering the company’s hospital medicine division. This CIA is designed to increase TeamHealth’s accountability and transparency so that the company will avoid or promptly detect future fraud and abuse.

“When health care companies boost their profits by misrepresenting the services they bill to taxpayer-funded health care programs, our office will make sure they are held accountable for their deceptive schemes and that they make changes to bill these programs appropriately,” said Special Agent in Charge Lamont Pugh of HHS-OIG.

The settlement resolves allegations filed in a lawsuit by Dr. Bijan Oughatiyan, a physician formerly employed by IPC as a hospitalist. The lawsuit was filed in a federal court in Chicago, Illinois, under the qui tam, or whistleblower, provisions of the False Claims Act, which permit private individuals to sue on behalf of the government for false claims and to share in any recovery. The Act also allows the government to intervene and take over the action, as it did in this case. Mr. Oughatiyan will receive approximately $11.4 million.

The government’s intervention in this matter illustrates the government’s emphasis on combating health care fraud. One of the most powerful tools in this effort is the False Claims Act. Tips and complaints from all sources about potential fraud, waste, abuse, and mismanagement, can be reported to the Department of Health and Human Services, at 800-HHS-TIPS (800-447-8477).

The settlement was the result of a coordinated effort by the Civil Division’s Commercial Litigation Branch, the U.S. Attorney’s Office for the Northern District of Illinois, and HHS-OIG.

The case is captioned United States ex rel. Oughatiyan v. IPC The Hospitalist, Inc., et al., Case No. 09-C-5418 (N.D. Ill.). The claims resolved by the settlements are allegations only and there has been no determination of liability.

Fort Myers Urologist Agrees To Pay More Than $3.8 Million For Ordering Unnecessary Medical Tests

Yesterday, United States Attorney A. Lee Bentley, III announced that Meir Daller, M.D. has agreed to pay $3.81 million to the government to resolve allegations that he violated the False Claims Act by causing claims to be submitted to federal health care programs for laboratory tests that were not medically necessary.

During the relevant time period, Dr. Daller was a urologist practicing as part of Gulfstream Urology, which was a division of 21st Century Oncology, LLC. 21st Century is a nationwide provider of integrated cancer care services that is headquartered in Fort Myers. As part of its business, 21st Century employs and affiliates with physicians in specialty fields such as radiation oncology, medical oncology, and urology.

The settlement announced today resolves allegations that Dr. Daller submitted claims to Medicare and Tricare for fluorescence in situ hybridization, or “FISH,” tests that were not medically necessary. FISH tests are laboratory tests performed on urine that can detect genetic abnormalities associated with bladder cancer. Medicare does not consider a FISH test reasonable or necessary unless it is used to monitor for tumor reoccurrence in a patient previously diagnosed with bladder cancer or unless, after performing a full urologic workup, the physician has reason to suspect that a patient with hematuria (i.e., blood in the urine) may have bladder cancer.

Beginning in 2009, Dr. Daller began referring all of the FISH testing ordered by him to a laboratory owned and operated by 21st Century. During the relevant time, Dr. Daller ordered over 13,000 separate FISH tests on his Medicare patients, making him the number one referring physician in the country with respect to FISH tests. Dr. Daller was paid bonuses by the company based, in part, on the number of FISH tests he referred to 21st Century laboratory. During the relevant time, Dr. Daller received approximately $2 million in bonus payments from 21st Century associated with these FISH tests.

The allegations that doctors affiliated with 21st Century were ordering unnecessary FISH tests were originally brought in a lawsuit filed by a whistleblower under the qui tam provisions of the False Claims Act, which allow private parties to bring suit on behalf of the government and to share in any recovery. The original lawsuit was captioned United States, State of Florida, ex rel. Mariela Barnes v. Dr. David Spellberg, 21st Century Oncology and Naples Urology Associates, Civil Action No. 2:13-cv-228-FtM-38DNF (M.D. Fla.).

In addition to the civil settlement, Dr. Daller has entered into a three-year Integrity Agreement with the Office of Inspector General of the United States Department of Health and Human Services. The Integrity Agreement, among other obligations, requires Dr. Daller to retain an Independent Review Organization to perform a Claims Review, as well as an Electronic Health Records Review to evaluate the appropriateness of any revisions made to the medical record after initial entry, pursuant to Medicare and Medicaid requirements.

In addition to the settlement announced today with Dr. Daller, the United States previously entered into settlements relating to similar allegations with 21st Century Oncology for $19.75 million and urologists David Spellberg, M.D. and Robert Scappa, D.O. for $1,050,000 and $250,000, respectively. As a result, the United States’ total recovery relating to the investigation of the use of FISH tests by doctor’s affiliated with 21st Century is now $24,860,000.

The whistleblower, a former medical assistant who worked for David Spellberg, M.D. at Naples Urology Associates, which was also a division of 21st Century Oncology, will receive $571,500 as her share of this recovery. This amount is in addition to a $3,437,000 million share she already received as a result of the settlements previously reached with David Spellberg, M.D, Robert Scappa, D.O., and 21st Century Oncology.

“Charging for clearly unnecessary medical services defrauds the government, threatens the viability of public health care programs, and breaches the sacred trust that physicians owe their patients,” said U.S. Attorney Bentley. “Our office will continue to pursue and hold accountable health care providers who defraud the United States.”

“Greed was the clear motive in this case,” said Shimon R. Richmond, Special Agent in Charge for the HHS Office of the Inspector General. “Patients’ needs played no role in ordering tests that were medically unnecessary and could have endangered patient care. Egregious fraud, such as alleged in this settlement, will not be tolerated. Together with our law enforcement partners, we will protect beneficiaries and the federal health care programs they rely upon.”

“The Defense Criminal Investigative Service (DCIS) continues to protect the integrity of the U.S. military health care program (TRICARE) against fraud as one of our top priorities. DCIS dedicates substantial resources to investigating both corporate and individual medical services providers who defraud the TRICARE program,” said Special Agent in Charge John F. Khin, Southeast Field Office.

The investigation was handled by Trial Attorney Arthur Di Dio from the Civil Division’s Commercial Litigation Branch and Assistant U.S. Attorney Kyle S. Cohen, with assistance from DCIS, FBI, and the Department of Health and Human Services Office of Inspector General.

Manhattan U.S. Attorney Announces $50 Million Settlement With Walgreens For Paying Kickbacks To Induce Beneficiaries Of Government Healthcare Programs To Fill Their Prescriptions At Walgreens’ Pharmacies

Preet Bharara, the United States Attorney for the Southern District of New York, Scott J. Lampert, Special Agent in Charge of the New York Office of the U.S. Department of Health and Human Services, Office of Inspector General (“HHS-OIG”), and Craig Rupert, Special Agent in Charge of the Northeast Field Office of the Defense Criminal Investigative Service, Department of Defense, Office of Inspector General (“DoD-OIG”), announced today a $50 million settlement in a civil fraud lawsuit against WALGREEN CO. (“WALGREENS”), a nationwide retail pharmacy chain that owns and operates thousands of retail pharmacies throughout the United States. The settlement resolves claims that WALGREENS violated the federal Anti-Kickback Statute (“AKS”) and False Claims Act (“FCA”) by enrolling hundreds of thousands of beneficiaries of government healthcare programs (“government beneficiaries”) in its Prescription Savings Club program (“PSC program”). Specifically, the Government’s Complaint alleges that Walgreens violated the AKS and FCA by providing government beneficiaries with discounts and other monetary incentives under the PSC program, in order to induce them to patronize WALGREENS’ pharmacies for all of their prescription drug needs. The Complaint further alleges that WALGREENS understood that allowing government beneficiaries to participate in the PSC program was a violation of the AKS, but that it nevertheless marketed the program to government beneficiaries and paid its employees bonuses for each customer they enrolled in the program, without verifying whether the customers were government beneficiaries. The settlement will also resolve numerous state law civil fraud claims.

U.S. District Court Judge J. Paul Oetken has approved a settlement agreement to resolve the Government’s claims against WALGREENS. Under the settlement, WALGREENS is required to pay approximately $46.21 million to the United States and has admitted and accepted responsibility for conduct alleged in the Government’s Complaint. Further, as part of the settlement, WALGREENS will pay approximately $3.79 million to resolve the state law civil fraud claims.

Manhattan U.S. Attorney Preet Bharara said: “Recognizing that it was a violation of the Anti-Kickback Statute to enroll government beneficiaries in its discount program, Walgreens nonetheless marketed the program to government beneficiaries and incentivized its employees to enroll customers in the program, regardless of whether they were government beneficiaries. As a result, Walgreens ended up unlawfully enrolling hundreds of thousands of government beneficiaries. With today’s settlement, Walgreens is being made to pay $50 million and has admitted to its conduct.”

HHS-OIG Special Agent in Charge Scott J. Lampert said: “The sheer scope of this nationwide kickback scheme is shocking. Walgreens admits to having paid bonuses to employees for enrolling customers in its prescriptions savings program without verifying whether the customers were Medicare or Medicaid beneficiaries, despite stated company policy against enrolling such beneficiaries based on federal statutes. Today’s settlement is a message to other retailers that there will be consequences for such conduct.”

DoD-OIG Special Agent in Charge Craig Rupert said: “This settlement is evidence of the continuing efforts of the Defense Criminal Investigative Service and our law enforcement partners to identify, investigate, and prosecute significant threats to the DoD health care system. DCIS will continue to aggressively investigate allegations of fraud and abuse harmful to U.S. taxpayers and the Department of Defense.”

As alleged in the Complaint and set forth in the parties’ Settlement Agreement, both of which have been filed in Manhattan federal court:

WALGREENS launched the PSC program in 2007. Throughout the period January 2007 through December 2010, the PSC program provided members with discounts on thousands of brand-name and generic drugs, as well as a 10 percent rebate on all WALGREENS’ branded products, including household products, baby-care products, most grocery items, and non-prescription medications. WALGREENS intended these lower drug prices and other monetary benefits to be an inducement to its existing and potential customers to cause them to patronize WALGREENS for all of their pharmacy needs. WALGREENS hoped that by offering these significant benefits to its customers, it would prevent them from taking their pharmacy business to WALGREENS’ competitors.

WALGREENS recognized that allowing government beneficiaries to participate in the PSC program would violate the AKS. Specifically, WALGREENS recognized that the features of the PSC program that made it attractive to its customers generally would constitute an illegal kickback when provided to government beneficiaries, as such features would induce government beneficiaries to patronize WALGREENS for all of their prescription medication needs, including those paid for in whole or in part by government healthcare programs. Accordingly, WALGREENS consistently maintained in its published materials regarding the PSC program that government beneficiaries were ineligible to participate in the program.

Notwithstanding WALGREENS’ understanding that allowing government beneficiaries to participate in the PSC program would violate the AKS, WALGREENS consistently marketed the PSC program to government beneficiaries. WALGREENS also incentivized its employees to enroll customers in the PSC program, regardless of whether they were government beneficiaries. For example, from May 2008 through August 2010, WALGREENS paid its employees from $1 to $5 for each customer they enrolled in the PSC program. In making these incentive payments, WALGREENS did not check whether the customers who had been enrolled were government beneficiaries.

Consequently, during the period January 2007 through December 2010, WALGREENS enrolled hundreds of thousands of government beneficiaries in the PSC program. These government beneficiaries included beneficiaries of the Medicare, Medicaid and TRICARE programs. Thereafter, from January 2011 through December 2015, while WALGREENS’ internal company policy continued to preclude the enrollment of government beneficiaries in the PSC program, WALGREENS continued to enroll such beneficiaries in the program.

As part of the settlement, WALGREENS admitted, acknowledged, and accepted responsibility for the following conduct:

  • During the period January 1, 2007 through December 31, 2010, WALGREENS’ published materials regarding the PSC program stated that persons receiving benefits from the Medicare and Medicaid programs were not eligible to participate in the PSC program.
  • In October 2007, WALGREENS identified approximately 13,000 PSC program members who it had determined were beneficiaries of the Medicare and Medicaid programs, and it removed those individuals from the PSC program. In an internal news release informing its employees of this removal, WALGREENS stated that “any customer who ha[d] any type of 3rd party coverage with a Medicare or Medicaid plan was removed from the [Prescription] Savings Club database,” and that “th[is] removal was necessary to comply with State/Federal regulations.”
  • Subsequent to October 2007 and continuing through December 31, 2010, internal WALGREENS documents reflect that its stated policy to exclude Medicare and Medicaid beneficiaries from the PSC program was based on, among other things, the prohibition on offering inducements to beneficiaries of government healthcare programs reflected in the federal AKS and corresponding state anti-kickback laws.
  • Notwithstanding its stated policy to exclude Medicare and Medicaid beneficiaries from the PSC program, subsequent to October 2007 and continuing through December 31, 2010, WALGREENS enrolled hundreds of thousands of Medicare and Medicaid beneficiaries in the PSC program.
  • Between November 2007 and December 31, 2010, WALGREENS also enrolled more than 10,000 TRICARE beneficiaries in the PSC program.
  • Prior to December 31, 2010, pharmacists at WALGREENS’ stores nationwide made tens of thousands of notations in WALGREENS’ internal customer database reflecting that specific Medicare, Medicaid, and TRICARE beneficiaries had been enrolled in the PSC program and were using the PSC program to purchase some of their prescription drugs.
  • At various times between November 2007 and December 31, 2010, WALGREENS paid its employees a bonus of between $1 and $5 for each customer they enrolled in the PSC program. When paying these bonuses, WALGREENS did not verify that the customers its employees had enrolled in the PSC program were not government beneficiaries.
  • Prior to December 31, 2010, WALGREENS did not have effective mechanisms in place to block government beneficiaries from enrolling in the PSC program or to monitor adequately whether government beneficiaries had been allowed to enroll in the PSC program, to ensure compliance with its stated policy to exclude such beneficiaries from the PSC program. As a result, hundreds of thousands of government beneficiaries were enrolled in the PSC program.
  • Subsequent to December 31, 2010, and continuing through December 31, 2015, WALGREENS’ internal company policy continued to preclude the enrollment of government beneficiaries in the PSC program, and WALGREENS continued to enroll such beneficiaries in the program.

In connection with the filing of the lawsuit and settlement, the Government joined a private whistleblower lawsuit that had previously been filed under seal pursuant to the False Claims Act.

Medical Device Company Charged With Accounting Failures and FCPA Violations

The Securities and Exchange Commission announced on Wednesday that Texas-based medical device company Orthofix International has agreed to admit wrongdoing and pay more than $14 million to settle charges that it improperly booked revenue in certain instances and made improper payments to doctors at government-owned hospitals in Brazil in order to increase sales.

Four then-executives at Orthofix also agreed to pay penalties to settle cases related to the accounting failures, which according to the SEC’s order involved Orthofix improperly recording certain revenue as soon as a product was shipped despite contingencies requiring certain events to occur in order to receive payment in the transaction.  In other instances, Orthofix immediately recorded revenue when it had provided customers with significant extensions of time to make payments.  The accounting failures caused the company to materially misstate certain financial statements from at least 2011 to the first quarter of 2013.

“Orthofix’s accounting failures were widespread and significant, causing Orthofix to make false statements to the public about its financial condition,” said Antonia Chion, Associate Director in the SEC’s Enforcement Division.

A separate SEC order finds that Orthofix violated the Foreign Corrupt Practices Act (FCPA) when its subsidiary in Brazil schemed to use high discounts and make improper payments through third-party commercial representatives and distributors to induce doctors under government employment to use Orthofix’s products.  Fake invoices were used for purported services.

Kara N. Brockmeyer, Chief of the SEC Enforcement Division’s FCPA Unit, added, “Orthofix did not have adequate internal controls across all its subsidiaries and failed to detect and prevent the improper payments in Brazil that were intended to boost sales.”

Orthofix agreed to pay an $8.25 million penalty to resolve the accounting violations and more than $6 million in disgorgement and penalties to settle the FCPA charges.  The company agreed to retain an independent compliance consultant for one year to review and test its FCPA compliance program.  The SEC’s order noted Orthofix’s cooperation and remedial acts.

Jeff Hammel, a former accounting executive in Orthofix’s largest business segment, agreed to pay a $20,000 penalty and former sales executives Kenneth Mack and Bryan McMillan agreed to pay penalties of $40,000 and $25,000 respectively.  Hammel also agreed to be suspended from appearing or practicing before the SEC as an accountant, which includes not participating in the financial reporting or audits of public companies.  The SEC’s order permits Hammel to apply for reinstatement after two years.  Orthofix’s former corporate CFO Brian McCollum agreed to pay a $35,000 penalty and reimburse the company $40,885 for bonuses he received during the period when the company committed accounting violations.  The four consented to the SEC’s orders without admitting or denying the findings.

Orthofix’s then-CEO Robert Vaters, who was not charged with wrongdoing, has reimbursed the company $72,886 for cash bonuses and certain stock awards he received during the period when the company committed accounting violations.  Therefore, it wasn’t necessary for the SEC to pursue a Sarbanes-Oxley Section 304(a) clawback action against him.

The SEC’s investigation into the accounting violations was conducted by Noel Gittens and Richard Haynes with assistance from Gregory Bockin.  It was supervised by Ricky Sachar and Ms. Chion.  The SEC’s investigation into the FCPA violations was conducted by Sana Muttalib and supervised by Ansu N. Banerjee and Ms. Brockmeyer.

Shire PLC Subsidiaries to Pay $350 Million to Settle False Claims Act Allegations

The Justice Department announced yesterday that Shire Pharmaceuticals LLC and other subsidiaries of Shire plc (Shire) will pay $350 million to settle federal and state False Claims Act allegations that Shire and the company it acquired in 2011, Advanced BioHealing (ABH), employed kickbacks and other unlawful methods to induce clinics and physicians to use or overuse its product “Dermagraft,” a bioengineered human skin substitute approved by the FDA for the treatment of diabetic foot ulcers. Shire plc is a multinational pharmaceutical firm headquartered in Ireland, with its United States operational headquarters in Lexington, Massachusetts. Shire sold the assets associated with Dermagraft in early 2014.

“This settlement represents the largest False Claims Act recovery by the United States in a kickback case involving a medical device,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division. “Kickbacks by suppliers of healthcare goods and services cast a pall over the integrity of our health care system. Patients deserve the unfettered, independent judgment of their health care professionals.”

The settlement resolves allegations that Dermagraft salespersons unlawfully induced clinics and physicians with lavish dinners, drinks, entertainment and travel; medical equipment and supplies; unwarranted payments for purported speaking engagements and bogus case studies; and cash, credits and rebates, to induce the use of Dermagraft. The Anti-Kickback Statute prohibits, among other things, the payment of remuneration to induce the use of medical devices covered by Medicare, Medicaid and other federally-funded health care programs, including the Department of Veterans Affairs (VA). Claims filed in violation of the Anti-Kickback Statute are considered false or fraudulent under the False Claims Act. In addition, the Anti-Bribery statute and the Federal Acquisition Regulations prohibit bribes to government officials or employees, including VA physicians, to obtain a contract or favorable treatment under a supply contract. The United States alleged that as a result of their violation of these provisions, ABH and Shire submitted or caused to be submitted to federally-funded health care programs hundreds of millions of dollars of false claims for Dermagraft.

“Flagrant and systemic kickback activity of the type at issue in this case is designed to impair and undermine a physician’s independent medical judgment, and will not be tolerated,” said U.S. Attorney A. Lee Bentley III for the Middle District of Florida (MDFL). “This lawsuit and today’s historic settlement demonstrate our office’s vigilant and on-going efforts to safeguard federal health care program beneficiaries from the effects of such illegal and deplorable conduct.” In addition to this landmark civil settlement, Mr. Bentley’s office continues to work diligently to bring to justice those individuals responsible for these illegal actions. Already, the MDFL has obtained the criminal convictions of three high-level executives who supervised the implementation of the illegal kickback scheme, as well as a number of healthcare providers who received kickbacks.

The U.S. Attorney’s Office for the District of Columbia also played an active role in this investigation, seeking redress in the civil agreement announced today for the losses sustained by the VA. “Giving kickbacks and gratuities to healthcare providers corrupts medical treatment by interjecting personal financial incentives into decisions that should focus on what is best for a particular patient,” said U.S. Attorney Channing D. Phillips for the District of Columbia. “These types of unlawful incentives are particularly troubling when they seek to corrupt the medical treatment provided to our nation’s veterans. We will aggressively pursue any company that engages in such reprehensible and unlawful conduct, which seeks to put a company’s financial gains ahead of providing the best medical treatment for those who bravely served in our Armed Forces.”

The U.S. Attorneys’ Office for the Eastern District of Pennsylvania and the Middle District of Tennessee also contributed to the investigation and resolution of these matters. “Fraud against the health care program that exists for the benefit of our veterans, some of our most cherished citizens, as well as fraud against the Medicare program, is reprehensible and unacceptable,” said the Acting U.S. Attorney Louis D. Lappen for the Eastern District of Pennsylvania. “This resolution again demonstrates the capacity of the Department of Justice and our law enforcement partners across the country to work together to address unlawful conduct nationwide that affects veterans and other beneficiaries of federally funded health care programs.”

The best interest of the patient is, and must be, the primary factor in a physician’s decision regarding patient care,” said U.S. Attorney David Rivera for the Middle District of Tennessee. “As such, federal law protects patients from medical providers who enrich themselves through bribes and kickbacks by making illegal the payment of remuneration to induce the use of medical devises covered by federally-funded health care programs. Such kickback schemes that interfere with physician-patient relationships and drive up the cost of healthcare for everyone, will be vigorously pursued and aggressively prosecuted.”

“U.S. Department of Veterans Affairs healthcare providers are obligated to render care free of any improper financial influences” said Special Agent in Charge Michael E. Seitler of the U.S. Department of Veterans Affairs, Office of Inspector General (VA OIG), Northwest Field Office. “This is particularly important at VA, since we care for many of this nation’s heroes who have sacrificed their own welfare for our freedom. In this case, ABH saw a dramatic rise in its sales to the VA during the period of time it provided illegal inducements to multiple VA clinicians across the country. These corrupt practices served to erode the public trust in our healthcare system. The VA OIG is committed to investigating, and bringing to justice, those who engage in these illegal practices.”

In addition to the kickback allegations, the settlement also resolved allegations that Shire and its predecessor ABH unlawfully marketed Dermagraft for uses not approved by the FDA, made false statements to inflate the price of Dermagraft, and caused improper coding, verification, or certification of Dermagraft claims and related services.

The allegations resolved by the settlement were brought in six lawsuits filed under the qui tam, or whistleblower, provisions of the False Claims Act, which permit private parties to sue on behalf of the government for false claims and to receive a share of any recovery. The whistleblower shares to be awarded in this case have not yet been determined.

The six qui tam cases, all of which were either filed or transferred to the U.S. District Court for the Middle District of Florida, are captioned: United States ex rel. Vinca v. Advanced BioHealing, Inc., Case No. 8:11-cv-176-T-30MAP; United States ex rel. Harvey v. Advanced BioHealing, Inc., Case No. 8:16-cv-303-T-30TBM; United States ex rel. Medolla v. Advanced BioHealing, Inc., Case No. 8:12-cv-575-T-30TBM; United States, et al., ex rel. Petty v. Shire Regenerative Medicine, Inc., Case No. 8:14-cv-969-T-30TBM; United States ex rel. Webb v. Advanced BioHealing, Inc., Case No. 8:14-cv-1055-T-30EAJ; and United States, et al., ex rel. Montecalvo v. Shire Regenerative Medicine, Inc., Case No. 8:16-cv-268-T-30TBM.

These matters were investigated by the Civil Division’s Commercial Litigation Branch; the U.S. Attorneys’ Offices for the Middle District of Florida, District of Columbia, Middle District of Tennessee and Eastern District of Pennsylvania; the FBI; the U.S. Department of Health and Human Services (HHS) Office of Inspector General; the VA OIG and the Department of Defense Criminal Investigative Service.

Shire, which cooperated in the government’s investigation, has been operating under a Corporate Integrity Agreement entered into with HHS that was implemented in late 2014, after the alleged unlawful conduct resolved by today’s settlement occurred, in connection with the settlement of separate False Claims Act allegations.

“Patients must be able to trust that decisions made by their doctors are based on unbiased professional judgment and not personal gain,” said Chief Counsel Gregory E. Demske to the HHS Inspector General. “The Office of the Inspector General will continue to monitor Shire’s compliance with federal healthcare programs through its oversight of Shire’s Corporate Integrity Agreement.”

This settlement illustrates the government’s emphasis on combating health care fraud and marks another achievement for the Health Care Fraud Prevention and Enforcement Action Team (HEAT) initiative, which was announced in May 2009 by the Attorney General and the Secretary of Health and Human Services. The partnership between the two departments has focused efforts to reduce and prevent Medicare and Medicaid financial fraud through enhanced cooperation. One of the most powerful tools in this effort is the False Claims Act. Since January 2009, the Justice Department has recovered a total of more than $31.4 billion through False Claims Act cases, with nearly $19.6 billion of that amount recovered in cases involving fraud against federal health care programs.

The claims resolved by the settlement are allegations only, and there has been no determination of liability.

United Shore Financial Services LLC Agrees To Pay $48 Million To Resolve Alleged False Claims Act Liability Arising From Fha-Insured Mortgage Lending

United Shore Financial Services LLC (USFS) has agreed to pay the United States $48 million to resolve allegations that it violated the False Claims Act by knowingly originating and underwriting mortgage loans insured by the U.S. Department of Housing and Urban Development’s (HUD) Federal Housing Administration (FHA) that did not meet applicable requirements, the Justice Department announced yesterday.  USFS is headquartered in Troy, Michigan.

“The settlement announced today holds United Shore accountable for its endorsement of ineligible loans for FHA mortgage insurance,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division.  “Over the past several years, the Civil Division, in collaboration with numerous U.S. Attorneys’ Offices, HUD and its Office of Inspector General, has diligently worked to hold FHA-approved lenders accountable for actions that deprived homeowners of their homes, wasted taxpayer funds, and contributed to the financial crisis.  The settlement announced today is yet another success in this continuing effort.”

“The federal government insures loans on the condition that lenders comply with certain rules to safeguard federal funds,” said U.S. Attorney Barbara L. McQuade for the Eastern District of Michigan.  “When lenders breach their duty of due diligence and make risky loans that go bad, taxpayers pay the bill.  By holding accountable lenders who fail to comply with underwriting requirements, we hope to send a message to all lenders that they must comply with government standards for federally insured loans.”

“USFS acknowledged that it failed to comply with FHA underwriting and quality control (QC) requirements, resulting in improperly originated mortgages,” said U.S. Attorney John W. Vaudreuil for the Western District of Wisconsin.  “While USFS deserves credit for acknowledging and resolving its conduct, that conduct not only resulted in substantial losses of public funds, but also put Wisconsin homeowners at risk of losing their homes or ruining their credit.  This large settlement should send a clear message that such conduct will not be tolerated.”

During the time period covered by the settlement, USFS participated as a direct endorsement lender (DEL) in the FHA insurance program.  A DEL has the authority to originate, underwrite and endorse mortgages for FHA insurance.  If a DEL approves a mortgage loan for FHA insurance and the loan later defaults, the holder of the loan may submit an insurance claim to HUD, FHA’s parent agency, for the losses resulting from the defaulted loan.  Under the DEL program, the FHA does not review a loan for compliance with FHA requirements before it is endorsed for FHA insurance.  DELs are therefore required to follow program rules designed to ensure that they are properly underwriting and certifying mortgages for FHA insurance, to maintain a QC program that can prevent and correct deficiencies in their underwriting practices, and to self-report any deficient loans identified by their QC program.

The settlement announced today resolves allegations that between Jan. 1, 2006, and Dec. 31, 2011, USFS failed to comply with certain FHA origination, underwriting and QC requirements.  As part of the settlement, USFS admitted to the following facts:  USFS improperly pressured underwriters to approve FHA mortgages and its compensation plan used a formula expressly tying underwriter compensation to the percentage of loans approved by the underwriter and closed by USFS.  USFS also falsely certified that direct endorsement underwriters personally reviewed appraisal reports prior to USFS approving and endorsing mortgages for FHA insurance.

Additionally, although USFS’ internal QC reviews showed severe problems with FHA insured mortgages, USFS routinely failed to provide any meaningful information to senior management regarding its QC findings.

USFS also failed to adhere to HUD’s self-reporting requirements.  While USFS’s QC reviews identified hundreds of materially-deficient FHA insured loans during the time period at issue, USFS self-reported only three loans to HUD.

As a result of USFS’ conduct and omissions, HUD insured hundreds of loans approved by USFS that were not eligible for FHA mortgage insurance under the Direct Endorsement program, and that HUD would not otherwise have insured.  HUD subsequently incurred substantial losses when it paid insurance claims on those loans.

Further, on Jan. 10, 2014, after the United States initiated an investigation into USFS, USFS made certain discretionary distributions to a shareholder in the company.

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“The settlement announced today strongly demonstrates HUD OIG’s continued efforts to identify and investigate underwriting deficiencies in the origination and underwriting of single-family residential loans insured by FHA,” said HUD Inspector General David A. Montoya.

“This settlement, once again, demonstrates HUD’s unyielding efforts to root out poor underwriting practices in its mortgage insurance programs,” said Acting HUD General Counsel Tonya Robinson.  “We want to thank the Department of Justice for partnering with us in holding lenders accountable for their actions. It is critically important that lenders comply with HUD’s underwriting standards and originate mortgages that are in accordance with FHA requirements and that borrowers can sustain.”

The settlement was the result of a joint investigation conducted by HUD, HUD’s Office of Inspector General, the Civil Division’s Commercial Litigation Branch and the U.S. Attorneys’ Offices for the Eastern District of Michigan and the Western District of Wisconsin

Defense Contractor Agrees to $4.535 Million Settlement for Alleged False Claim Act Violations

Advanced C4 Solutions, Inc. agreed today to pay $4.535 million to the United States to settle allegations that it submitted inflated invoices to the government for work performed at Joint Base Andrews.

The settlement was announced by United States Attorney for the District of Maryland Rod J. Rosenstein; Brigadier General Keith M. Givens, Commander Air Force Office of Special Investigations (OSI); Special Agent in Charge Robert Craig of the Defense Criminal Investigative Service – Mid-Atlantic Field Office (DCIS); and U.S. Small Business Administration Inspector General Peggy E. Gustafson.

“Federal authorities will vigorously investigate and prosecute defense contractors that cheat the government,” said U.S. Attorney Rod J. Rosenstein. “The Justice Department works closely with defense agencies to safeguard taxpayer dollars.”

Advanced C4 Solutions, Inc. (the “Company”) is a Florida-based company that was operating as a certified “small business” under Section 8(a) of the Small Business Act.  On June 10, 2010, the Company was awarded a contract, DO27, to supply project management and labor services for an Air Force technology project.  The contract was awarded by the U.S. Navy’s Space and Warfare Systems Command (“SPAWAR”), which was administering the contract in support of the United States Air Force.  Among other things, DO 27 required the Company to design, construct, and implement certain local area network and wide area network systems that would be utilized by Air Force personnel and other components of the U.S. Armed Forces on Joint Base Andrews in Maryland.  The DO 27 contract required the Company to accurately provide invoices to the United States for work performed under the DO 27 contract, including work by subcontractors.  Labor costs were required to be billed according to the job classifications set forth in the contract and the number of labor hours worked by personnel at each job classification.  The DO 27 contract also provided that the Company could only utilize pre-approved subcontractors.  Pursuant to this provision, the Company entered into subcontractor agreements with several entities, one of which was Superior Communication Solutions, Inc. (“SCSI”).

Advanced C4 Solutions and its subcontractors began work under the DO 27 Contract in June 2010.  Andrew Bennett was the Company’s project manager who was tasked with overseeing the work performed by the Company and its subcontractors under the DO 27 contract.  In this capacity, he was responsible for verifying the accuracy of all invoices submitted by subcontractors to the Company and, in turn, all the invoices submitted by the Company to SPAWAR.

The settlement resolves allegations that Bennett, while an employee of the Company, knew that SCSI created false invoices that charged for labor hours that were not actually worked, and charged the United States at job classification rates for personnel that did not have the requisite credentials to be billed at those rates, and yet submitted those SCSI invoices to the government for payment anyway.  SPAWAR subsequently paid these invoices not knowing they were false.

In related cases, Andrew Bennett, age 52, of Tampa Florida, James T. Shank, age 68, of Perry, Georgia, and a third individual were indicted on federal criminal charges related to their actions in this matter. Bennett and Shank pled guilty to conspiracy to commit wire fraud for their conduct related to the DO 27 contract.  The third defendant is scheduled for trial beginning on January 30, 2017.

United States Attorney Rod J. Rosenstein commended Air Force OSI, DCIS, and SBA for their work in the investigation. Mr. Rosenstein thanked Assistant U.S. Attorney Jason D. Medinger who handled this case.

Forest Laboratories and Forest Pharmaceuticals to Pay $38 million to Resolve Kickback Allegations Under the False Claims Act

Forest Laboratories LLC, located in New York, New York, and its subsidiary, Forest Pharmaceuticals Inc., have agreed to pay $38 million to resolve allegations that they violated the False Claims Act by paying kickbacks to induce physicians to prescribe the drugs Bystolic®, Savella®, and Namenda®, the Department of Justice announced yesterday.

“Kickback schemes undermine the integrity of medical decisions and increase the costs of health care for everyone,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division.  “Such schemes are particularly of concern when they are designed to influence drug prescriptions, and the Department of Justice will vigorously pursue companies that subvert the law at the public’s expense.”

The settlement resolves allegations that Forest violated the Anti-Kickback Statute, which prohibits the payment of remuneration to induce referrals of items or services covered by federal health care programs, by providing payments and meals to certain physicians in connection with speaker programs about Bystolic®, Savella®, or Namenda® between Jan. 1, 2008 and Dec. 31, 2011.  The United States contends that the payments and meals were intended as improper inducements because Forest provided these benefits even when the programs were cancelled (and Forest provided no evidence of a bona fide reason for the cancellation), when no licensed health care professionals attended the programs, when the same attendees had attended multiple programs over a short period of time, or when the meals associated with the programs exceeded Forest’s internal cost limitations.

As a result of today’s $38 million settlement, the federal government will receive $35.5 million and state Medicaid programs will receive $2.5 million.  The Medicaid program is funded jointly by the state and federal governments.

“We are committed to protecting federally funded healthcare programs from fraud, and this settlement reflects that commitment,” said U.S. Attorney Gregory J. Haanstad for the Eastern District of Wisconsin. “We are particularly concerned with ensuring that drugs are prescribed based on patients’ needs and not on the personal financial interests of drug manufacturers or prescribing physicians.”

“Quality and patient safety must be the driving factors in the medical decision making process,” said Special Agent in Charge Lamont Pugh III of U.S. Department of Health and Human Services, Office of Inspector General (HHS-OIG) – Chicago Regional Office. “Attempting to sway physicians to deviate from those core values with illegal inducements, as alleged in this lawsuit, debilitates their unbiased medical judgment at the expense of patients and taxpayers.”

The settlement resolves allegations filed in a lawsuit by former Forest employee Kurt Kroening, in federal court in Milwaukee, Wisconsin.  The lawsuit was filed under the qui tam, or whistleblower, provisions of the False Claims Act, which permit private individuals to sue on behalf of the government for false claims and to share in any recovery.  Mr. Kroening will receive approximately $7.8 million.

This settlement illustrates the government’s emphasis on combating health care fraud and marks another achievement for the Health Care Fraud Prevention and Enforcement Action Team (HEAT) initiative, which was announced in May 2009 by the Attorney General and the Secretary of Health and Human Services.  The partnership between the two departments has focused efforts to reduce and prevent Medicare and Medicaid financial fraud through enhanced cooperation.  One of the most powerful tools in this effort is the False Claims Act.  Since January 2009, the Justice Department has recovered a total of more than $31.1 billion through False Claims Act cases, with more than $19.4 billion of that amount recovered in cases involving fraud against federal health care programs.

The settlement is the result of a coordinated effort by the Civil Division’s Commercial Litigation Branch and the U.S. Attorney’s Office for the Eastern District of Wisconsin, with assistance from the HHS Office of the Inspector General, the HHS Office of Counsel to the Inspector General, the Office of the General Counsel for the Defense Health Agency, the National Association of Medicaid Fraud Control Units, and the FBI.

The case is captioned United States ex rel. Kroening v. Forest Pharmaceuticals, Inc., et al., Case No. 12-CV-366.  The claims resolved by the settlement are allegations only, and there has been no determination of liability.

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