Manhattan U.S. Attorney Announces $39 Million Civil Fraud Settlement Against Qualitest Pharmaceuticals for Selling Half-Strength Fluoride Supplements

Yesterday, Preet Bharara, the United States Attorney for the Southern District of New York, Scott J. Lampert, Special Agent in Charge of the New York Regional Office for the Office of Inspector General for the Department of Health and Human Services (“HHS-OIG”), and Diego Rodriguez, the Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation (“FBI”), and Patrick E. McFarland, the Inspector General for the U.S. Office of Personnel Management (“OPM”) announced a $39 million settlement against Vintage Pharmaceuticals, LLC, d/b/a  QUALITEST PHARMACEUTICALS; Vintage’S corporate parent Endo Pharmaceuticals, Inc.; and seven of their corporate subsidiaries or affiliates (collectively, “QUALITEST”) in a civil fraud lawsuit.  This global settlement resolves federal claims under the False Claims Act, 31 U.S.C. § 3729 et seq., that allege QUALITEST sold chewable fluoride tablets that contained less than half the amount of fluoride ion indicated on the drug label and caused federal healthcare programs to be fraudulently billed for these tablets, and also will resolve numerous state law civil fraud claims.

The Government simultaneously intervened in and settled this lawsuit, which was initially filed by a whistleblower.  As alleged in the Government’s intervention papers, QUALITEST violated the False Claims Act by knowingly manufacturing and selling understrength chewable fluoride tablets that were prescribed to children living in communities without fluoridated water supply to prevent tooth decay, and causing Medicaid and the Federal Employees Health Benefits Program to pay millions of dollars for these understrength tablets.  Today, U.S. District Judge Denise Cote approved a settlement stipulation to resolve the Government’s claims against QUALITEST.  Under that settlement, QUALITEST agrees to pay $22.44 million to the Government to resolve the federal civil fraud claims and make extensive admissions.  Further, as part of the global settlement, QUALITEST will pay approximately $16.56 million to the settling states to resolve state law civil fraud claims.

As part of the settlement, QUALITEST admitted that they manufactured and sold chewable fluoride tablets from 2007 to July 2013 and that they knew federal healthcare programs, including Medicaid, were a significant source of coverage of QUALITEST’s fluoride tablets.  QUALITEST also admitted that, since at least 1994, guidelines issued by the American Dental Association and the American Academy of Pediatrics recommended that, to prevent tooth decay, fluoride supplements be prescribed to children living in communities without fluoridated water supply in doses of 1.0 mg, 0.5 mg, or 0.25 mg of fluoride ion per day, depending on a child’s age and the local water fluoridation level.  Further, QUALITEST admitted that the drug labeling for their chewable fluoride tablets stated that those tablets contained 1.0 mg, 0.5 mg, and 0.25 mg of fluoride and the drug labeling specifically referenced the guidelines from the American Dental Association and the American Academy of Pediatrics.

The allegations of fraud stated in the Complaint were first brought to the attention of the Government by Dr. Stephan Porter, who filed a lawsuit in early 2013 under the qui tam provisions of the False Claims Act.  In August 2013, and after the Government began its investigation into the whistleblower’s allegations, QUALITEST stopped making and selling their chewable fluoride tablets.  Under the settlement approved earlier today, the Government agreed to pay Dr. Porter approximately $4.71 million pursuant to the False Claims Act’s qui tam provisions.

If you know of or suspect health care fraud, contact us now.

DOJ Announces Over $3.5 Billion in Fraud Recoveries in 2015

DOJ recently announced that it recovered over $3.5 billion in settlements and judgments from civil fraud cases in the fiscal year ending September 30, 2015.  That recovery falls short of the $5.69 billion that DOJ recovered in FY 2014.

The majority of the total came from the health care industry, which accounted for $1.9 billion of the settlements and judgments;  the next most significant sectors were government contracting and federal procurement at $1.1 billion and housing and mortgage fraud at $365 million.  The health care total, which only includes federal losses, included $330 million from cases involving hospitals and $96 million from the pharmaceutical industry. FY 2015 ended a five-year streak in which the government had recovered at least $2 billion from the health care industry annually, though this is likely an anomaly and should not suggest that enforcement in the healthcare sector is waning.

Over two-thirds of the year’s recovery – $2.8 billion – came from whistleblower qui tam suits, including from some of the 638 such suits filed in FY 2015.  Relator awards in that period totaled $598 million, the highest ever.  Further, over $300 million of that total relator award derived from suits in which DOJ did not intervene; the previous record for highest annual total relator award when DOJ declined to intervene was $49 million in FY 2011.

If you have a potential whistleblower matter and would like to speak to an attorney, contact us now.

Pharmasan Labs and NeuroScience, Inc., Settle False Claims Act Allegations

Yesterday, John W. Vaudreuil, United States Attorney for the Western District of Wisconsin, announced that Pharmasan Labs, Inc. and NeuroScience, Inc., and Gottfried Kellermann, 74, and Mieke Kellermann, 68, both of Osceola, Wis., have agreed to pay $8.5 million to the United States to resolve False Claims Act allegations.

The settlement resolves allegations that Pharmasan submitted false information for laboratory services billed to Medicare, and allegations that it violated Medicare rules pertaining to services referred by non-physician practitioners. Pharmasan is a laboratory located in Osceola, and NeuroScience is a related corporation that bills Medicare for Pharmasan’s services. The Kellermanns founded both corporations.

As part of the agreement, Pharmasan agreed that the United States could prove that: Pharmasan falsely billed Medicare for ineligible food sensitivity testing for nearly five years; Pharmasan employees knew that Medicare prohibited payment for food sensitivity testing; and Pharmasan employees submitted false information to Medicare disguising the type of test that Pharmasan was performing so that Medicare would pay for the services.

Pharmasan also agreed that the United States could prove that it knowingly submitted claims for laboratory services that violated Medicare billing rules. Pharmasan knew that Medicare billing rules prohibit payment for laboratory services referred to a laboratory by non-physician practitioners, with few exceptions for mid-level practitioners. A large portion of Pharmasan’s referrals for laboratory services came from non-physician practitioners that were not eligible to refer Medicare paid services. Pharmasan employees nevertheless billed Medicare for these services for nearly five years.

Under the terms of the agreement, Pharmasan, NeuroScience, and the Kellermanns agreed to the forfeiture of $2,852,015.81 seized by federal agents on March 12, 2014. They also agreed to pay an additional $5,669,837.58 to the United States.

You can read the FBI’s entire press release here.

If you are aware of or suspect Medicare billing fraud, contact us now.

University of Florida Agrees to Pay $19.875 Million to Settle False Claims Act Allegations

According to a DOJ press release, the University of Florida (UF) has agreed to pay the United States $19.875 million to settle allegations that the university improperly charged the U.S. Department of Health and Human Services (HHS) for salary and administrative costs on hundreds of federal grants, the Department of Justice announced today.  The grants in question were administered from the UF campuses in Gainesville and Jacksonville, Florida.

“The monies utilized by HHS to fund important medical research and clinical programs across the nation are both precious and limited,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division.  “Today’s settlement demonstrates that the Department of Justice will pursue grantees that knowingly divert those funds from the projects for which they were provided.”

“As the U.S. Department of Health and Human Services (HHS) awards more grant dollars than any other government agency, prudent oversight of those funds is absolutely essential,” said HHS Regional Inspector General for Audit Lori S. Pilcher.  “Grantees must have internal controls promoting accountability and transparency,” she said.  “Taxpayers should expect nothing less.”

The University of Florida receives millions of dollars in grant funding from HHS on hundreds of grants each year.  The settlement announced today resolves the alleged misuse of grant funds awarded by HHS to UF between 2005 and December 2010.  The United States contended that the university overcharged hundreds of grants for the salary costs of its employees, where it did not have documentation to support the level of effort claimed on the grants for those employees.  The government also contended that UF charged some of these grants for administrative costs for equipment and supplies when those items should not have been directly charged to the grants under federal regulations.  Lastly, UF allegedly inflated costs charged to HHS grants awarded at its Jacksonville campus for services performed by an affiliated entity, Jacksonville Healthcare Inc.

The full press release is available here.

If you are aware of or suspect grant fraud, contact us now.

California Federal Judge Tosses Claims Predicated On Star Ratings But Allows Kickback Claims To Proceed

In U.S. ex rel. Orten v. North Amer. Health Care, Inc., No. 14-cv-02401 (N.D. Cal. Nov. 9, 2015), a California district court recently denied a relator’s efforts to predicate the alleged manipulation of skilled nursing facility (“SNF”) CMS Star Ratings into a cognizable claim under the FCA, but allowed the relator to proceed with allegations that the CEO of the company directed a kickback scheme designed to create business.   The case reinforces established precedent that FCA suits cannot be based on regulatory violations that are not also conditions of payment.

More specifically, the Orten court concluded that the regulations governing star ratings do not require compliance as a condition for payment.  Instead, they are merely a system for state agencies “to determine whether [SNFs] are compliant or non-compliant with Medicare and Medicaid requirements.”  Important to the court’s ruling was that non-compliance with these regulations could lead to a variety of alternative remedies in place of a discretionary denial of payment.  Therefore, the court found, the relator had “at most” alleged fraud connected to participation in the FHCPs, “depending on the remedy the government decides on to address instances of non-compliance.”

A copy of the court’s opinion can be found here and a copy of the government’s statement of interest can be found here.

Department of Justice Follows Through on Threat of Individual Prosecution

Only weeks after Deputy Attorney General Sally Yates announced that the government was going to take a harder line against individuals in corporate fraud cases, the government has charged the former CEO of Warner Chilcott.

Carl Reichel was arrested in connection with a health care fraud, false claims and kickback investigation that has also lead to criminal and civil charges against the company. Mr. Reichel has been charged with conspiracy to pay kickbacks to physicians in connection with the promotion of Warner Chilcott drugs. The company has agreed to plead guilty to similar charges, as well as settle a related civil False Claims Act case, paying a total of $125 million in fines and penalties.

In a related action, the government obtained an indictment against a Massachusetts doctor for accepting kickbacks from Warner Chilcott in the form of speaker fees and free meals. The physician was also charged with allowing drug reps to view HIPAA protected patient information in connection with the marketing efforts, as well as lying to investigators.

Budget Bill “Catch-Up” Provision To Increase FCA Fraud Penalties

Historically, in 1986, the False Claims Act (“FCA”) was amended so that the penalties increased from $2,000 to between $5,000 and $10,000 per false claim. In 1999, the penalties were elevated to their present level of between $5,500 and $11,000 per false claims.  Now they are slated to become even higher.

More specifically, Congress recently passed the “Bipartisan Budget Act of 2015,” which will require federal agencies to impose significant increases in civil monetary penalties, including the statutory penalties mandated by the FCA, the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”), and the Program Fraud Civil Remedies Act (“PFCRA”).  Tied to adjustments to the Consumer Price Index (“CPI”) (i.e., inflation), the amendment’s potential impact on FCA defendants is considerable.  See H.R. 1314, 114th Cong. § 701 (amending the Federal Civil Penalties Inflation Adjustment Act of 1990).  The “catch up adjustment” – which applies a cost-of-living adjustment percentage derived from the amount by which the CPI in October 2015 exceeds the CPI in October of the year in which the penalty amount was established or adjusted – would be implemented through “interim final rulemaking” that must take effect no later than August 1, 2016.  After that, it appears the penalties will be automatically adjusted on an annual basis.

Given that False Claims Act penalties are assessed on a per claim basis, and given that this aspect of False Claims Act liability can be astronomical in cases involving the submissions of large numbers of false claims, this is a significant development in False Claims Act jurisprudence.   In fact, it is likely that FCA defendants will redouble their efforts to declare the penalties as excessive and unconstitutional in violation of the Eighth Amendment, which they have to date occasionally argued with limited success.

Nearly 500 Hospitals Pay United States More Than $250 Million To Resolve False Claims Act Allegations Related To Implantation Of Cardiac Devices

The Department of Justice announced today that it has reached 70 settlements involving 457 hospitals in 43 states for more than $250 million related to cardiac devices that were implanted in Medicare patients in violation of Medicare coverage requirements.

“The settlements announced today demonstrate the Department of Justice’s commitment to protect Medicare dollars and federal health benefits,” said U.S. Attorney Wifredo A. Ferrer of the Southern District of Florida.  “Guided by a panel of leading cardiologists and the review of thousands of patients’ charts, the extensive investigation behind the settlements was heavily influenced by evidence-based medicine.  In terms of the number of defendants, this is one of the largest whistleblower lawsuits in the United States and represents one of this office’s most significant recoveries to date.  Our office will continue to vigilantly protect the Medicare program from potential false billing claims.”

“While recognizing and respecting physician judgment, the department will hold accountable hospitals and health systems for procedures performed by physicians at their facilities that fail to comply with Medicare billing rules,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division.  “We are confident that the settlements announced today will lead to increased compliance and result in significant savings to the Medicare program while protecting patient health.”

An implantable cardioverter defibrillator, or ICD, is an electronic device that is implanted near and connected to the heart.  It detects and treats chaotic, extremely fast, life-threatening heart rhythms, called fibrillations, by delivering a shock to the heart, restoring the heart’s normal rhythm.  It is similar in function to an external defibrillator (often found in offices and other buildings) except that it is small enough to be implanted in a patient’s chest.  Only patients with certain clinical characteristics and risk factors qualify for an ICD covered by Medicare.

The DOJ press release is available at

Novartis To Pay $390 Million to Settle False Claims Act Case

Tuomey Hospital Avoids Bankruptcy with Settlement of Record Stark/FCA Verdict

Last week, the United States Department of Justice and Tuomey Healthcare System announced a settlement of the $237 million verdict against Tuomey. The underlying suit involved allegations that Tuomey violated the Stark Law and, after a trial by jury, the district court entered judgment in October 2013 for $237,454,195, plus post-judgment interest.  The Fourth Circuit affirmed the judgment in July 2015.  According to DOJ’s press release last week, Tuomey will pay the United States $72.4 million and will become part of Palmetto Health, which is a multi-hospital healthcare system based in Columbia, South Carolina.  It appears from related court filings that, absent a settlement, Tuomey was prepared to file for bankruptcy.

The DOJ press release can be found here.

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