Whistleblower Watch: Summer 2024 | Cozen O’Connor

Quarterly Update on FCA Enforcement and Qui Tam Litigation

Whistleblower monitoring Cozen O’Connor is a comprehensive source of news and information about the False Claims Act (FCA). Each quarter, Cozen O’Connor will provide in-house counsel and compliance professionals with a summary of the FCA’s most notable enforcement actions, settlements and legal trends, as well as an in-depth look at significant and emerging issues related to the FCA. Subscribe to stay up to date on these changes and find out how they may impact you.

Recent FCA Agreements and Enforcement Measures

Diagnostic testing center settles claims of kickbacks to doctors for patient referrals (Southern District of New York)

Balance Diagnostics USA, LLC, a diagnostic testing facility, has agreed to pay $2.5 million to settle civil claims under the FCA and the Anti-Kickback Statute (AKS) arising from payments to physicians and their medical practices in exchange for patient referrals. The Government alleged that from January 2009 through December 2019, Balance made payments of hundreds of thousands of dollars in the form of false rental payments to more than 100 physicians and their practices to induce them to refer patients for diagnostic testing services performed by Balance personnel in the medical offices. According to the Government, the rental payments were based solely on the number of patient referrals and were far above the market value of the space used. Balance admitted and accepted liability for the alleged conduct. Under similar circumstances, an Illinois medical equipment supplier was recently convicted of eight counts of wire fraud for paying kickbacks to a U.S. Department of Veterans Affairs employee in exchange for false monthly rental fees. These cases show that the Government is looking at ancillary relationships and contracts and examining the substance of business relationships rather than simply their form.

Hospital pays largest FCA settlement in Massachusetts history (District of Massachusetts)

Cape Cod Hospital agreed to pay $24.3 million to settle civil claims under the FCA arising from claims that it violated Medicare rules requiring one or two cardiologists to independently examine a patient to determine whether a heart valve replacement is necessary and document that decision. In investigating information from a whistleblower, the government concluded that half of the hospital’s 800 claims for transcatheter aortic valve replacements from November 2015 through December 2022 violated those rules. The hospital paid $24.3 million to the government, with $4.3 million going to the whistleblower, making it the largest FCA recovery from a Massachusetts hospital in history. Cape Cod Hospital also agreed to enter into a five-year corporate integrity agreement authorizing the U.S. Department of Health and Human Services to review its Medicare claims. In particular, the hospital received credit under the Department of Justice Guidelines for voluntarily producing materials, identifying relevant documents, and voluntarily implementing corrective measures.

Online lender settles claims of inflated loans (District of Massachusetts, Eastern District of Texas)

Now-bankrupt online lender Kabbage Inc. has agreed to pay $120 million in two separate settlements to resolve allegations related to thousands of false claims for loan forgiveness and operating without adequate fraud controls. The first settlement, for $63 million, resolved allegations that it violated the FCA by deliberately inflating loans to maximize processing fees. According to the government, Kabbage double-counted state and local taxes that employees paid when determining borrowers’ gross wages, which inflated the loan amount and resulted in excessive processing fees. The second settlement, for $57 million, resolved allegations that Kabbage had inadequate fraud controls in place, in violation of its obligations under the Paycheck Protection Program (PPP).

Nuclear Plant Contractor Resolves FCA Claims for Filing Unworked Time (Northern District of Texas)

Consolidated Nuclear Security LLC (CNS) has agreed to pay $18.4 million to resolve allegations under the FCA that its product technicians at a plant in Amarillo, Texas, logged hours they never worked. Pursuant to a federal contract with the U.S. Department of Energy, CNS operated the plant for the assembly, disassembly, and modernization of nuclear weapons. According to the government, from July 2014 through June 2020, CNS was paid for time worked based on falsified timesheets submitted by some of the plant’s technicians. CNS cooperated with the investigation and terminated the employees in question, resulting in a credit for disclosure, cooperation, and remediation.

LEGAL TRENDS AND PERSPECTIVES

Justice Department action to combat health care fraud results in unprecedented recovery

On June 27, 2024, the Department of Justice announced that its National Health Care Fraud Enforcement Action resulted in 193 defendants and more than $2.75 billion in false claims. Those 193 defendants included 76 physicians, nurse practitioners, and other licensed medical professionals in 32 different federal districts across the country. The enforcement action was led and coordinated by the Criminal Division’s Fraud Section’s Health Care Fraud Unit in conjunction with the U.S. Attorney’s Offices, the Department of Health and Human Services Offices of Inspector General, the FBI, and the Drug Enforcement Administration. The alleged charges include a fraud scheme involving amniotic wound grafts, the illegal distribution of millions of prescription drugs by individuals associated with a digital technology company, the distribution of adulterated and misbranded HIV medications, fraudulent addiction treatment schemes, telemedicine and laboratory fraud, and healthcare and opioid fraud schemes. Notably, these actions were accomplished, in part, by the Healthcare Fraud Unit’s Data Analytics Team, which used cutting-edge data analytics to identify and support the investigations that led to these charges. To learn more about the Government’s use of data analytics in healthcare FCA enforcement actions, click here. To learn more about how healthcare continues to drive FCA enforcement, click here, here, and here.

Use of patent reviews in FCA lawsuits reaches Supreme Court

Valeant Pharmaceuticals is heading to the Supreme Court to try to resolve a Circuit split over whether information cited in Patent Trial and Appeal Board (PTAB) reviews can later be used by whistleblowers in FCA lawsuits under the public disclosure ban. Since 2018, Valeant has been defending allegations that it overcharged Medicare, Medicaid, and other programs for sales of an ulcerative colitis drug based on whistleblower allegations that it had a monopoly on the drug using patent claims that PTAB judges later found to be invalid. In January, the Ninth Circuit denied Valeant’s request to review its decision to revive the whistleblower lawsuit, leading to Valeant’s petition in April. For more coverage of the case, click here and here.

Increased focus on fraud in Department of Defense public procurement

The Department of Defense (DOD) Office of the Inspector General recently announced that it will be paying more attention to fraud in government contracting. In 2023, the DOJ announced $551 million in DOD-related settlements and judgments. Among those settlements was a $377 million settlement with Booze Allen Hamilton related to allegations that it improperly billed for commercial and international costs on its government contracts. We expect this trend to continue well into 2024. For more information, click here.

A DEEPER DIVE

Enforcement of private equity portfolio rules in the healthcare sector is an important reminder of compliance

The Justice Department has expressed continued interest in private equity acquisitions, particularly in the healthcare sector. To learn more about how healthcare companies can protect their investments, click here.