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.

* * *

“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.

Justice Department Recovers Over $4.7 Billion From False Claims Act Cases in Fiscal Year 2016

The Department of Justice obtained more than $4.7 billion in settlements and judgments from civil cases involving fraud and false claims against the government in fiscal year 2016 ending Sept. 30, Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division, announced today.  This is the third highest annual recovery in False Claims Act history, bringing the fiscal year average to nearly $4 billion since fiscal year 2009, and the total recovery during that period to $31.3 billion.

“Congress amended the False Claims Act 30 years ago to give the government a more effective tool against false and fraudulent claims against federal programs,” said Mizer.  “An astonishing 60 percent of those recoveries were obtained in the last eight years.  The beneficiaries of these efforts include veterans, the elderly, and low-income families who are insured by federal health care programs; families and students who are able to afford homes and go to college thanks to federally insured loans; and all of us who are protected by the government’s investment in national security and defense.  In short, Americans across the country are healthier, enjoy a better quality of life, and are safer because of our continuing success in protecting taxpayer funds from misuse.”

Of the $4.7 billion recovered, $2.5 billion came from the health care industry, including drug companies, medical device companies, hospitals, nursing homes, laboratories, and physicians.  The $2.5 billion recovered in fiscal year 2016 reflects only federal losses.  In many of these cases, the Department was instrumental in recovering additional millions of dollars for state Medicaid programs.  This is the seventh consecutive year the Department’s civil health care fraud recoveries have exceeded $2 billion.

The next largest recoveries came from the financial industry in the wake of the housing and mortgage fraud crisis.  Settlements and judgments in cases alleging false claims in connection with federally insured residential mortgages totaled nearly $1.7 billion in fiscal year 2016 – the second highest annual recovery in this area.

The False Claims Act is the government’s primary civil remedy to redress false claims for government funds and property under government programs and contracts relating to such varied areas as health care, defense and national security, food safety and inspection, federally insured loans and mortgages, highway funds, small business contracts, agricultural subsidies, disaster assistance, and import tariffs.  In 1986, Congress strengthened the Act by amending it to increase incentives for whistleblowers to file lawsuits alleging false claims on behalf of the government.

Most false claims actions are filed under those whistleblower, or qui tam, provisions.  If the government prevails in the action, the whistleblower, also known as the relator, receives up to 30 percent of the recovery.  Whistleblowers filed 702 qui tam suits in fiscal year 2016, and the Department recovered $2.9 billion in these and earlier filed suits this past year.  The government awarded the whistleblowers $519 million during the same period.

Health Care Fraud

The Department recovered $19.3 billion in health care fraud claims from January 2009 to the end of fiscal year 2016 – 57 percent of the health care fraud dollars recovered in the 30 years since the 1986 amendments to the False Claims Act.  These recoveries restore valuable assets to federally funded programs such as Medicare, Medicaid, and TRICARE, the health care program for service members and their families.  But just as important, the Department’s vigorous pursuit of health care fraud prevents billions more in losses by deterring others who might otherwise try to cheat the system for their own gain.  The Department’s success is a direct result of the high priority the Obama Administration has placed on fighting health care fraud.  In 2009, the Attorney General and the Secretary of the Department of Health and Human Services, the Department that administers Medicare and Medicaid, announced the creation of an interagency task force called the Health Care Fraud Prevention and Enforcement Action Team (HEAT), to increase coordination and optimize criminal and civil enforcement.  Additional information on the government’s efforts in this area is available at StopMedicareFraud.gov, a webpage jointly established by the Departments of Justice and Health and Human Services.

The largest recoveries this past year – $1.2 billion – came from the drug and medical device industry.  Drug manufacturers Wyeth and Pfizer Inc. paid $784.6 million to resolve federal and state claims that Wyeth knowingly reported false and fraudulent prices on two drugs used to treat acid reflux, Protonix Oral and Protonix IV.  The government alleged that Wyeth (before it was acquired by Pfizer) failed to report deep discounts available to hospitals, as required by the government to ensure that the Medicaid program enjoyed the same pricing benefits available to the company’s commercial customers.  Wyeth paid $413.2 million to the federal government and $371.4 million to state Medicaid programs.

In another settlement against a drug company, Novartis Pharmaceuticals Corp. paid $390 million based on claims that the company gave kickbacks to specialty pharmacies in return for recommending Exjade, an iron chelation drug, and Myfortic, an anti-rejection drug for kidney transplant recipients.  The settlement includes $306.9 million for the federal government and $83.1 million for state Medicaid programs.

Hospitals and outpatient clinics accounted for $360 million in recoveries.  Tenet Healthcare Corp., a major hospital chain in the United States, paid $244.2 million to resolve civil allegations that four of its hospitals engaged in a scheme to defraud the United States by paying kickbacks in return for patient referrals.  Tenet paid an additional $123.7 million to state Medicaid programs, and two of its subsidiaries pleaded guilty to related charges and forfeited $145 million, bringing the total resolution to $513 million.

In the medical lab arena, Millennium Health (formerly Millennium Laboratories) paid $260 million to settle allegations that it billed Medicare, Medicaid, and other federal health care programs for excessive and unnecessary urine drug and genetic testing and also that it gave free items to induce physicians to refer expensive and profitable lab tests to Millennium, in violation of the Anti-Kickback Statute and Stark Law.  The settlement included $214.8 million in alleged false claims against federal programs, $26 million in alleged false claims against state Medicaid programs, and $19.2 million in related administrative claims.

The nation’s largest contract therapy provider paid $125 million to resolve claims that it had induced skilled nursing homes to submit false claims to Medicare for rehabilitation services that were not reasonable, necessary, and skilled, or that weren’t provided at all.  The settlement was with RehabCare Group Inc., RehabCare Group East Inc., and their parent, Kindred Healthcare Inc.  Cases involving nursing homes and skilled nursing facilities accounted for more than $160 million in settlements and judgments this past fiscal year.

“These health care recoveries benefit vulnerable citizens in Medicare and Medicaid and the taxpayers who pay for those programs,” said Inspector General Daniel R. Levinson of the U.S. Department of Health and Human Services.  “Beyond those significant settlements, though, my agency works to improve voluntary observance of federal laws through corporate integrity agreements addressing compliance weaknesses, and self-disclosures that encourage health care providers and other entities to voluntarily report suspected violations.”

Housing and Mortgage Fraud

The Department recovered more than $7 billion in housing and mortgage claims from January 2009 to the end of fiscal year 2016, including settlements and judgments totaling $1.6 billion this past fiscal year – the second highest annual recovery in the history of the federally insured mortgage program.  Notable this year were settlements with Wells Fargo for $1.2 billion and Freedom Mortgage Corp. for $113 million.

Wells Fargo and Freedom Mortgage both admitted that they had originated and endorsed residential mortgages as eligible for federal insurance by the Federal Housing Administration (FHA) that did not meet requirements intended to reduce the risk of default.  This put consumers at risk of losing their homes in foreclosure and increased the number of claims against the FHA when their loans went into default.  The banks also admitted failing to report such deficiencies to the authorities as required under the program, despite internal reports exposing high rates of underwriting deficiencies that would have put the agency on notice so it could prevent continued program violations and mounting losses.  By originating and endorsing ineligible loans for FHA insurance, the banks increased their mortgage profits at taxpayer expense while incurring little or no risk of their own.

As part of the Wells Fargo settlement, the bank’s vice president of Credit Risk – Quality Assurance, Kurt Lofrano, admitted that he annually certified Wells Fargo’s compliance with FHA’s Direct Endorsement Lender program and the bank’s continued qualification to remain in the program.

These recoveries are part of the broader enforcement efforts by President Obama’s Financial Fraud Enforcement Task Force.  President Obama established the interagency task force in 2009, to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes.  The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources.  The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.  For more information about the task force, visit www.stopfraud.gov.

Other Fraud Recoveries

Although health care and mortgage fraud dominated fiscal year 2016 recoveries, the Department has aggressively pursued fraud wherever it is found in federal programs and contracts.  For example, the Department recovered $82.6 million in false claims from BP Exploration and Production Inc. (BP) arising from the April 2010 Deepwater Horizon/Macondo Well explosion and oil spill in the Gulf of Mexico.  The government, through the Department of the Interior, leases portions of the Outer Continental Shelf to companies like BP that operate exploratory oil wells.  In exchange for the lease, the operators pay royalties based on the volume of oil extracted from the wells.  Program regulations applicable to exploration of the Outer Continental Shelf require well operators to maintain a “safe drilling margin” and to report plans to drill further into an open hole if the margin falls below legal limits.  The government alleged that BP provided false reports about its “safe drilling margin” that concealed its improper drilling, which left the well in a fragile state and ultimately resulted in the blowout.  The government’s civil fraud claims were part of a $20 billion consent decree reached with the United States and five Gulf states that also included damages and penalties under state and federal environmental laws, mandatory restoration of the area, and other relief.

The government also continued to pursue a variety of procurement fraud matters.  For example, L-3 Communications EOTech Inc. and its parent company, L-3 Communications Corp., paid the United States $25.6 million for defective holographic weapon sites EOTech sold to the Department of Defense, Department of Homeland Security, and FBI.  The defendants, including EOTech’s president, admitted knowing the sights failed to perform as represented in cold temperatures and humid environments, but delayed disclosing the defects to federal authorities for years.  Besides compensating the government for critical funds lost through fraud, such settlements ensure that the vital terms of contracts supporting the nation’s defense and security agencies are enforced, and deter other contractors from acting fraudulently or recklessly to increase their profits in the future.

The Department had several settlements with for-profit schools that allegedly participated in illegal schemes to secure federal education funds.  For example, the second largest for-profit education company in the country, Education Management Corp., paid the United States $52.6 million to resolve allegations that it unlawfully recruited students, engaged in deceptive and misleading recruiting practices, and falsely certified compliance with Title IV of the Higher Education Act and parallel state laws that prohibited such conduct, as part of a $95.5 million global federal-state settlement.

The Department also recovered $50 million in customs fraud.  U.S. Customs and Border Protection collects duties on imports of foreign goods to protect U.S. manufacturers from unfair competition abroad by leveling the playing field for domestic products.  Importers who seek an unfair advantage by knowingly evading or reducing their obligation to pay these duties are subject to damages and penalties under the False Claims Act.  These recoveries both address lost duties and safeguard U.S. markets.

These suits and settlements illustrate the diversity of cases pursued by the Department and the Department’s quest to root out fraud and false claims against the government wherever it may be found.

Holding Individuals Accountable    

On Sept. 9, 2015, the Department issued a memorandum on individual accountability for corporate wrongdoing.  This memorandum reinforced the Department’s commitment to use the False Claims Act and other civil remedies to deter and redress fraud by individuals as well as corporations.

Cardiologist Dr. Asad Qamar and his practice, the Institute of Cardiovascular Excellence (ICE), paid $2 million this past fiscal year, and released claims to an additional $5.3 million in suspended Medicare funds, to settle allegations that he and his practice billed Medicare, Medicaid, and TRICARE for medically unnecessary procedures and paid kickbacks to patients by waiving Medicare copayments irrespective of financial hardship.  Medicare copayments provide beneficiaries with an incentive to be smart health care consumers and avoid unnecessary procedures.  The government alleged that by waiving the required copayments indiscriminately, Dr. Qamar and ICE induced patients to undergo unnecessary and invasive procedures.  This conduct made Dr. Qamar the highest paid Medicare cardiologist in the United States in 2012 and 2013.  Dr. Qamar also agreed to a three-year exclusion from participating in any federal health care program followed by a three-year integrity agreement with the Department of Health and Human Services Office of the Inspector General.

Additional examples of individuals held personally liable for alleged false claims include George Hepburn ($10.3 million), founder and president of Dynasplint Systems Inc.; Dr. Jonathan Oppenheimer ($9.35 million), former owner and chief executive officer of a Nashville drug testing laboratory; Gottfried and Mieke Kellermann ($8.5 million), founders of Pharmasan Labs Inc. and NeuroScience Inc.; Jacob (Jake) J. Kilgore ($4 million), former co-owner, vice president, and later president of Orbit Medical Inc.; Dr. David G. Bostwick ($3.75 million), founder and former owner and chief executive officer of Bostwick Laboratories Inc.; Mark T. Conklin ($1.75 million), former owner, operator, and sole shareholder of Recovery Home Care Inc. and Recovery Home Care Services Inc.; Dr. David Spellberg ($1.05 million) and Robert A. Scappa, D.O. ($250,000), urologists with 21st Century Oncology LLC; and Ralph J. Cox III ($1 million), former chief executive officer of Tuomey Healthcare System.

Recoveries in Whistleblower Suits

Of the $4.7 billion the government recovered in fiscal year 2016, $2.9 billion related to lawsuits filed under the qui tam provisions of the False Claims Act.  During the same period, the government paid out $519 million to the individuals who exposed fraud and false claims by filing a qui tam complaint.

The number of lawsuits filed under the qui tam provisions of the Act has grown significantly since 1986, with 702 qui tam suits filed this past year – an average of 13.5 new cases every week.  The growing number of qui tam lawsuits, particularly since 2009, has led to increased recoveries.  From January 2009 to the end of fiscal year 2016, the government recovered nearly $24 billion in settlements and judgments related to qui tam suits and paid more than $4 billion in whistleblower awards during the same period.

“The qui tam provisions provide a valuable incentive to industry insiders who are uniquely positioned to expose fraud and false claims to come forward despite the risk to their careers,” said Principal Deputy Assistant Attorney General Mizer.  “This takes courage, for which they are justly rewarded under the Act.”

In 1986, Senator Charles Grassley and Representative Howard Berman led the successful efforts in Congress to amend the False Claims Act to, among other things, encourage whistleblowers to come forward with allegations of fraud.  In 2009, Senator Patrick J. Leahy, along with Senator Grassley and Representative Berman, championed the Fraud Enforcement and Recovery Act of 2009, which made additional improvements to the False Claims Act and its whistleblower provisions.  And in 2010, the passage of the Affordable Care Act provided additional inducements and protections for whistleblowers.

Mizer also expressed his deep appreciation for the many dedicated public servants who investigated and pursued these cases – the attorneys, investigators, auditors, and other agency personnel throughout the Department’s Civil Division and the U.S. Attorneys’ Offices, as well as the agency Offices of Inspector General, and the many federal and state agencies that contributed to the Department’s recoveries this past fiscal year.

“The Department’s lawyers and staff, together with our law enforcement partners in federal and state governments, work tirelessly and often overcome daunting challenges,” said Mizer. “Their efforts continue to pay for themselves many times over, providing substantial benefits to the taxpayers.”

The government’s claims in the matters described above are allegations only; except where indicated, there has been no determination of liability.

Attorney General Kamala D. Harris, 42 Other Attorneys General, Announce $19.5 Million Settlement with Pharmaceutical Company Bristol-Myers Squibb Over Unlawful Promotion of Abilify Drug

California Attorney General Kamala D. Harris recently announced that California, along with 42 other states and the District of Columbia, has reached a $19.5 million agreement with biopharmaceutical company Bristol-Myers Squibb over allegations that the company illegally marketed the popular atypical antipsychotic drug Abilify. Attorney General Harris secured $1.3 million of the overall settlement for California.

In 2009, California and other states launched a multistate consumer protection investigation of Otsuka America Pharmaceutical, Inc., which manufactures Abilify, and Bristol-Myers Squibb, which is largely responsible for promoting Abilify. The states’ investigation found that Bristol-Myers Squibb engaged in off-label marketing by illegally promoting Abilify for therapeutic uses for which it was not approved, such as certain pediatric uses and to treat dementia. In addition to incentivizing sales representatives to engage in off-label marketing, the investigation found that the company misled doctors and patients about the drug’s risks and side effects and misrepresented the findings of scientific studies concerning the drug in marketing messages.

“These companies endangered and compromised the health and well-being of millions of Americans in order to turn a profit,” said Attorney General Harris. “This settlement makes clear that pharmaceutical companies using deceptive and unlawful tactics to promote drugs will not be tolerated in the United States.”

Abilify is approved by the Food and Drug Administration to treat schizophrenia, bipolar disorder, major depressive disorder, and Tourette’s disorder. Abilify, known as a blockbuster drug because of its popularity, generated $5.5 billion in sales in 2014, with Bristol-Myers Squibb receiving approximately $2.02 billion of that amount.

The settlement places strict rules on how Bristol-Myers Squibb can promote and market Abilify going forward, including prohibiting the company from promoting the drug for off-label uses, compensating health care providers for promotional activities without disclosing their connection to the company, using medical grants to promote the drug, and making unsubstantiated safety or efficacy comparisons between Abilify and other products.

In addition, under the terms of the agreement, Bristol-Myers Squibb must provide only accurate and scientifically balanced information about Abilify, conspicuously disclose risks, and take clear steps to ensure it is not creating financial incentives for promotion, sales, and marketing that would violate the law.

Attorney General Kamala D. Harris has a longstanding record of prosecuting illegal and deceptive marketing and sales of prescription drugs.

In September 2016, Attorney General Kamala Harris and 35 other Attorneys General filed a lawsuit against Indivior, a British pharmaceutical company, and MonoSolRX, an Indiana pharmaceutical film technology company, for engaging in a “product-hopping” scheme to block competition to Suboxone, an opioid addiction treatment, ultimately generating almost one billion dollars in undeserved profits.

In May 2016, Attorney General Harris filed a lawsuit against Johnson & Johnson for false advertising and deceptive marketing of its surgical mesh products for women, alleging that the company neglected to inform both patients and doctors of possible severe complications and misrepresented the frequency and severity of risks.

Last year, Attorney General Harris along 48 other states and the District of Columbia reached a $71 million settlement with the pharmaceutical company Amgen Inc. to resolve allegations that Amgen unlawfully promoted biologic medications Aranesp and Enbrel. California received $4.6 million from the settlement. The consent judgment required Amgen to reform its marketing and promotional practices and refrain from making deceptive or misleading claims in promoting Enbrel or any drug in the same class as Aranesp.

South Miami Hospital Agrees to Pay the United States $12 Million to Settle False Claims Act Allegations

South Miami Hospital, a not-for-profit regional hospital located in South Miami, Florida has agreed to pay the United States approximately $12 million to settle allegations that it violated the False Claims Act by submitting false claims to federal healthcare programs for medically unnecessary electrophysiology studies and other procedures allegedly performed by John R. Dylewski, M.D., at South Miami Hospital.

Wifredo A. Ferrer, United States Attorney for the Southern District of Florida, Shimon R. Richmond, Special Agent in Charge, U.S. Department of Health and Human Services, Office of Inspector General (HHS-OIG), Miami Region, John F. Khin, Special Agent in Charge, Defense Criminal Investigative Service (DCIS), Southeast Field Office, and Scott Rezendes, Special Agent in Charge, Office of Personnel Management, Office of Inspector General (OPM-OIG), made the announcement.

“This settlement shows our continued resolve to pursue institutional providers who turn a blind eye to the systematic overutilization of medical procedures and inflated billing practices resulting in significantly increased costs to the federal government,” said Wifredo A. Ferrer, United States Attorney for the Southern District of Florida.

“This settlement highlights the commitment of the Defense Criminal Investigative Service (DCIS) and its law enforcement partners to protect the integrity of the Department of Defense (DoD) health care program known as TRICARE,” said DCIS Special Agent in Charge John F. Khin.  “DCIS aggressively investigates health care providers that defraud the DoD, to preserve American taxpayer dollars intended to care for our warfighters, their family members, and military retirees.”

“Performing medically unnecessary heart procedures is shocking to the conscience,” said Shimon R. Richmond, HHS-OIG Miami Special Agent in Charge. “Conducting cardiac catheterizations purely for profit, not patient care, seriously breaches the “do no harm” commitment physicians pledge. Together with our law enforcement partners, we will seek out, stop these practices and protect the Medicare patients who are victimized by physicians participating in these schemes.”

“It is absolutely unconscionable that anyone in the medical profession would place profit above a patient’s health and well-being,” said OPM-OIG Special Agent in Charge Rezendes.  “We remain firmly committed to ensuring that Federal employees, annuitants, and their families are protected and that such unscrupulous behavior is identified and stopped.”

The allegations arose from a lawsuit filed by two whistleblowers, James A. Burks, M.D., and James D. Davenport, M.D., under the qui tam provisions of the False Claims Act.  Relator Burks is a board-certified vascular surgeon and medical doctor who began his practice as a vascular surgeon at South Miami Hospital in 2003.  Relator Davenport is a board-certified cardiologist and medical doctor, who was an active member of various peer review committees at South Miami Hospital between 2010 and 2014.  Under the False Claims Act, private citizens can bring suit on behalf of the government for false claims and share in any recovery.  Drs. Burks and Davenport will receive approximately $ 2,748,500 from the recovery announced today.

According to court documents, plaintiffs claimed to have personal knowledge of Dr. Dylewski and South Miami Hospital engaging in a number of unnecessary cardiac procedures, including echocardiograms, electrophysiology studies, head upright tilt tests, and other treatments of arrhythmia by ablation, cryoablation, or implantation of an electronic device, for the sole purpose of increasing the amount of physician and hospital reimbursements paid by Medicare and other federally-funded programs.

The settlement was the result of a coordinated effort by the United States Attorney’s Office for the Southern District of Florida, HHS-OIG, DCIS, and OPM-OIG.  The case was investigated and the settlement negotiated by Assistant U.S. Attorney John C. Spaccarotella.

The case is captioned United States of America ex. rel. James A. Burks, M.D. and James D. Davenport, M.D. v. John R. Dylewski, M.D., et al., Case No. 14-CV-22079 (S.D. Fla.).  The claims settled by the lawsuit are allegations only, and there has been no determination of liability.

United States Settles False Claims Act Allegations Against Orthopedic Surgery Practice For $4,488,000

On Wednesday, United States Attorney A. Lee Bentley, III announced that Southeast Orthopedic Specialists (SOS), a Jacksonville, Florida-based orthopedic medical group, has agreed to pay the government $4.488 million to resolve allegations that it violated the False Claims Act.

The United States contends that it has certain civil claims against SOS arising from SOS billing federal healthcare programs for services that were not medically necessary and reasonable. Specifically, the United States contends that SOS sought reimbursement for millions of dollars of healthcare claims that were questionable. The United States alleges that these questionable bills include:

1.  SOS certified that it met certain standards related to the “meaningful use” of electronic health records when the practice had, in fact, not met those standards;

2. SOS knowingly billed for certain claims as “incident to” physician supervision when no physician was present or there was no verification of any physician being present;

3.  SOS knowingly billed for certain claims using Modifier 25 signifying that a separate evaluation and management service was performed even when there was no such separate service;

4.  SOS knowingly billed for certain claims using Modifier 59 signifying that two procedures, rather than one, were billable even when these procedures should have more appropriately been billed as one such procedure;

5.  SOS knowingly scheduled patients’ follow-up operative visits from 12 weeks following surgery to 14 weeks in an effort to bill for a separate visit outside the normal Medicare 90 days Diagnosis-Related Group charge;

6.  SOS knowingly used and billed for ultrasound-guided injections routinely even in the absence of medical necessity; and

7.  SOS knowingly billed for certain physical therapy claims using Modifier KX so as to exceed the Medicare cap on physical therapy, despite the absence of medical necessity.

“The United States Attorney’s Office is committed to taking the steps necessary to protect Medicare and other federal health care programs from fraud,” said U.S. Attorney Bentley. “When health care practitioners submit fraudulent claims for reimbursement, we will hold them accountable.”

“The Department of Health and Human Services, Office of Inspector General will relentlessly seek out those who defraud the Medicare program,” said Special Agent in Charge Shimon Richmond.  “Obtaining tax dollars which Medicare providers are not entitled to impacts our entire healthcare system and the OIG will hold health care providers accountable who misrepresent services to boost profits.”

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 $31.6 billion through False Claims Act cases, with more than $19.2 billion of that amount recovered in cases involving fraud against federal health care programs.

This matter was investigated by the U.S. Department of Health and Human Services. It was prosecuted by Assistant United States Attorney Jason Mehta.

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

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

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