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 http://www.justice.gov/usao-sdfl/pr/nearly-500-hospitals-pay-united-states-more-250-million-resolve-false-claims-act

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.

False Claims Act Whistleblower Also Receives Share of Civil Monetary Penalty (CMP) Imposed By HHS-OIG

For what appears to be the first time, a False Claims Act whistleblower who received a reward in connection with the False Claims Act case also received a share of a subsequent CMP imposed by the HHS-OIG in a related enforcement action.  As background, the False Claims Act case had been brought against Jack Baker, M.D., and Fairmont Diagnostic Center/Open MRI.  In 2012, Dr. Baker, who was a prominent radiologist in Houston, TX, and Fairmont entered into a $650,000 False Claims Act settlement concerning allegations that Dr. Baker and Fairmont engaged 17 physicians in “sham” medical director agreements to induce patient referrals. Fairmont also allegedly placed its own full-time employees as “referral coordinators” in certain physicians’ offices to help patients obtain the ordered imaging study.  The government alleged that these full-time Fairmont employees were performing office functions on behalf of the physician, which constituted improper remuneration intended to induce referrals.  The whistleblowers in that case, Drs. Philip Blum and David Spinks, jointly received 20% of the proceeds of the settlement.

Subsequently, on June 9, 2015, the OIG issued a fraud alert aimed at warning physicians about how their financial arrangements – such as medical directorships – can create a risk of personal liability under the Federal Anti-Kickback Statute.  The fraud alerted warned physicians about entering into suspect compensation arrangements and advised them to “ensure that those arrangements reflect fair market value for bona fide services the physicians actually provide” by “carefully consider[ing] the terms and conditions of medical directorships and other compensation arrangements before entering into them.”  Payments that take into account the volume or value of referrals, do not reflect fair market value for the services performed, or compensate the physician in ways that are unrelated to providing services raise compliance risks, according to the OIG.  Similarly, not providing the services called for under the arrangement can also create liability issues.

Relevant here, this fraud alert also addressed a series of 12 settlements under the OIG’s CMP authorities obtained over the past two years with the individual physicians who had medical director arrangements with the False Claims Act case defendants.  In total, the OIG collected over $1.4 million in penalties from 11 physicians and excluded one physician for three years. The settlement amounts ranged from $50,000 to $195,016.  Most recently, it came to light that the OIG was awarding a share of these penalties to the False Claims Act whistleblowers, which means that the whistleblowers received two awards, one from DOJ and one from HHS-OIG.

This is an interesting and important development in the False Claims Act/CMP context, and should further encourage whistleblowers to come forward.

Florida Court Concludes that Whistleblower Has Standing to Pursue FCA Civil Penalties Despite No Damages

In many FCA cases, the potential liability for civil penalties is vastly higher than potential damages, even after trebling. For that reason, defendants have often asserted various challenges, including Constitutional challenges, to the applicability or imposition of civil penalties.  Recently, in a February 6 opinion, U.S. ex rel. Baklid-Kunz v. Halifax Hospital Medical Center, a district court in Florida rejected the argument that a relator who foregoes a claim for damages, and seeks only civil penalties under the FCA, lacks Article III standing. The court relied primarily on the Supreme Court’s 2000 opinion in Vermont Agency of Natural Resources, and concluded that the long tradition of qui tam actions – including those for recovery of civil penalties – dating back centuries, which was cited in Vermont Agency, supported the conclusion that qui tam suits seeking recovery of civil penalties only are properly understood to be “cases” or “controversies” within the meaning of Article III. The district court also cited in support the December 2013 opinion in U.S. ex rel. Bunk v. Gosselin World Wide Moving, N.V., in which the Fourth Circuit similarly held that relators have standing to pursue qui tam claims for civil penalties, even in the absence of any claim for damages.

Court Rules Whistleblower Case Against Abbott Laboratories Concerning TriCor to Move Forward

In an Order entered on January 31, 2014, District Judge Darnell Jones, II found the whistleblower Complaint filed by former Abbott employee, Amy Bergman, under Federal and State False Claims Acts, alleged sufficient facts regarding kickbacks to physicians and improper off-label marketing of the blockbuster drug TriCor.

Abbott Laboratories, a pharmaceutical company that has already pleaded guilty and paid over $1.5 billion to U.S. federal and state authorities after multiple separate investigations into alleged illegal marketing and false claims regarding several of its prescription drugs and those of its subsidiaries, was unsuccessful in its attempt to dismiss this similar case regarding its blockbuster drug TriCor.  TriCor is a fibrate that was approved by the FDA for use in certain limited circumstances in patients with elevated triglycerides or a particular type of cholesterol imbalance.  The Relator in the current case, a former salesperson for Abbott, filed a whistleblower lawsuit alleging Abbott marketed TriCor to doctors in a deceptive manner for medically unnecessary and unapproved uses, resulting in hundreds of millions of dollars in inappropriate prescription costs paid by Medicare and Medicaid.  The lawsuit also alleges that Abbott paid kickbacks and other improper incentives to high volume prescribers and other physicians in order to encourage or reward them for prescribing TriCor.

In denying the Motion to Dismiss, Judge Jones observed that the Amended Complaint “provides myriad details of Abbott’s marketing statements that contradict its FDA-approved label. Specifically, relator alleges that there were no clinical data supporting the use of TriCor as a first-line therapy for diabetics to treat cardiovascular morbidity and mortality, which was an off-label use. Nevertheless, Abbott directed its representatives to respond strategically to these kinds of objections from physicians and to provide studies of a different, albeit similar, drug to support the off-label claims Abbott was making about TriCor.”  Judge Jones went on to state, “These marketing activities, if they in fact occurred as Relator alleges, flout the provision on the FDA-approved package insert for TriCor which notes that the drug’s effects on cardiovascular morbidity and mortality have not been established.”

Annual sales of TriCor increased dramatically in the United States during the time period that the  illegal marketing activities alleged in the Amended Complaint occurred  — from approximately $403 million in 2002, to approximately $1.3 billion in 2008.

The lawsuit seeks to benefit the United States government and a number of states by having Abbott repay Medicare and Medicaid the hundreds of millions of dollars in prescription costs paid as a result of the deceptive off-label marketing and kickbacks.  Federal law provides protection and compensation to employee whistleblowers that bring evidence of false claims to the government. The lawsuit was filed by attorneys at Nicholson & Eastin, LLP and the Kelley/Uustal law firm.

Lead Attorney Robert Nicholson commented that, “Judge Jones engaged in a very thoughtful and thorough analysis of the allegations and the law, and appropriately denied Abbott’s Motion to Dismiss the Amended Complaint.  As detailed in the case filings, Abbott has a documented history of improper off-label marketing, with multiple prior settlements with the Government regarding other drugs.  We view the decision as a significant victory for the Relator in her effort to expose Abbott’s conduct regarding TriCor, and we are confident that this case will resolve in favor of the United States and the Relator.”

The case is pending before the Honorable C. Darnell Jones, II, in the United States District Court for the Eastern District of Pennsylvania under Case No. 09-4264

For more information, or a copy of the Amended Complaint, contact Robert Nicholson, at Nicholson & Easton, LLP, Robert@NicholsonEastin.com or (954) 634-4400.

DOJ Releases False Claims Acts Statistics

The DOJ just released its annual compilation of False Claims Act (FCA) statistics.  Overall, the DOJ recovered $3.8 billion during FY 2013 – an amount second only to last year’s record-breaking recovery of almost $5 billion.  Neither of these figures reflects criminal fines and forfeitures or state recoveries for Medicaid fraud, which actually drive up the government’s total fraud recoveries by billions more.  This past year also marks the fourth consecutive year that the DOJ has recovered an excess of $3 billion.  Interestingly, these numbers do not include the $2.2 billion settlement with Johnson & Johnson announced in November for claims that J&J illegally promoted its drugs Risperdal, Invega, and Natrecor, as well as engaged in a widespread kickback scheme with physicians.

All in all, the FCA is clearly alive and well, and more and more cases get filed each year.

Abbott Laboratories to Pay $5.475 Million to Settle Kickback Allegations

On January 2, 2013, the Department of Justice (DOJ) announced that Abbott Laboratories (Abbott) agreed to pay $5.475 million to settle allegations that Abbott paid physicians kickbacks in exchange for influencing decisions to implant Abbott devices in patients in violation of the False Claims Act (FCA). Although Abbott made no admissions of liability, the DOJ’s press release explained the settlement is in resolution of allegations that Abbott knowingly arranged payments to physicians for teaching assignments, speaking arrangements, and conferences expecting that those physicians’ action would result in the implantation of the Abbott carotid, biliary, and peripheral vascular products in patients at the hospitals with which the physicians were associated.

The recent settlement announced by the DOJ resulted from a qui tam suit filed by two former Abbott employees, Steven Peters and Douglas Gray. Acting as whistleblowers and alleging violation of the FCA on behalf of the government, Peters and Gray claimed that Abbott’s payments made in exchange for physicians’ influencing hospitals to implant Abbott products in patients amounted to kickbacks in violation of FCA and in the submission of false claims to Medicare for procedures in which the Abbott products were used. Peters and Gray will share in the recovery of the government under the settlement, collecting a total of $1 million in damages for themselves.

If you are aware of any similar illegal conduct, contact us now.

Fourth Circuit Holds That a $24 Million FCA Penalty Is Not An “Excessive Fine” Despite No Proof of Actual Damages

In United States ex rel. Bunk v. Gosselin World Wide Moving, N.V., No. 12-1369 (4th Cir. Dec. 19, 2013), the Fourth Circuit reversed a district court’s judgment that awarded nothing on a prevailing $50 million False Claims Act claim for civil penalties.

The panel first ruled that FSA relator Kurt Bunk had “standing” because the harm to the federal government (from a scheme to fix prices and rig bids on charges for moving goods of U.S. military personnel) satisfied the injury-in-fact requirement for constitutional standing to sue.

The court also concluded that the award of zero in civil penalties was improper and ordered the trial court to impose $24 million in FCA penalties against the defendants following a trial at which the relator sought no FCA damages and no proof of economic harm to the United States was ever established.  The panel observed that the FCA contains a statutory requirement of at least a $5,500 penalty for each of the 9,136 false invoices at issue — over $50 million! — and that the number seemed harsh in light of the $2 million or so in possible losses to the government.  But fortunately the Relator had agreed to take far less — just $24 million. The court held, “Under the circumstances before us, we are satisfied that the entry of judgment on behalf of Bunk for $24 million on the DPM claim would not constitute an excessive fine under the Eighth Amendment. That amount, we think, appropriately reflects the gravity of [price-fixer/bid-rigger] Gosselin’s offenses and provides the necessary and appropriate deterrent effect going forward.” Id. at 44.

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