The Centers for Medicare & Medicaid Services (CMS) recently released data on its 2021 and 2022 settlements of voluntary self-disclosures related to past violations or potential violations of the physician self-referral law (the “Stark Law”). In 2022, CMS settled a record 104 self-disclosures, with settlement amounts totaling over $9,000,000 in the aggregate. These amounts are nearly quadruple the number and amounts of settlements in 2021 and one more than the previous record number from 2016. The record number and value of settlements in 2022 shows a marked increase from 2020 and 2021, when we speculated that CMS focused greater attention on the 2019 novel coronavirus (“COVID-19”) pandemic. Coming on the heels of the COVID-19 pandemic, it appears that CMS is working to review a greater number of self-disclosure submissions annually, which may reduce the backlog or the time it takes to have a self-disclosure reviewed.
Eleventh Circuit Affirms Order for $1.195 Million in Restitution and 48 Month Sentence in Commercial Insurance Healthcare Fraud Case
Last month, the Eleventh Circuit upheld a $1.195 million restitution order and 48-month sentence against Carlos Verdeza for three counts of healthcare fraud. See United States v. Verdeza, No. 21-10461, 2023 WL 3728960 (11th Cir. 2023). Verdeza was a case brought by the United States against a physician assistant who produced fraudulent patient files and sought reimbursement from Blue Cross Blue Shield (BCBS) commercial healthcare insurance for physical therapy treatments that were never performed. A jury in the United States District Court for the Southern District of Florida convicted Verdeza on three healthcare fraud counts. Verdeza illustrates that prosecutors can and do prosecute healthcare fraud cases that do not involve government payors.
U.S. Supreme Court Clarifies DOJ’s Authority to Dismiss Whistleblowers’ False Claims Act Suits, Questions Constitutionality of Qui Tam Provisions
In United States ex rel. Polansky v. Executive Health Resources, Inc., the U.S. Supreme Court recently resolved a circuit split[1] by holding that in a False Claims Act (“FCA”) action (1) the Government may seek dismissal of a qui tam case in which it initially declined to intervene over the relator’s objection as long as the Government later intervened in the litigation, and (2) that in considering such a dismissal motion, district courts should apply the rule generally governing voluntary dismissal of suits: Federal Rule of Civil Procedure 41(a). Under Rule 41(a), the Court explained that the Government has broad latitude to seek dismissal stating that “motions will satisfy Rule 41 in all but the most exceptional cases.” The decision is an important one for the Government and FCA defendants. But perhaps as important as the Court’s central holding in the Polansky case (and certainly more surprising), was the view expressed by Justice Thomas in dissent (and echoed by Justice Kavanaugh in a concurring opinion joined by Justice Barrett) that the FCA’s qui tam provision permitting a private citizen to litigate a case on behalf of the United States may be unconstitutional.
Regional Hospital System and Two Physicians Pay More Than $69 Million to Settle False Claims Act, Involving Allegations of Improper Financial Relationships With Referring Physicians
On March 29, 2023, the U.S. District Court for the Eastern District of Michigan granted the parties’ joint stipulation for dismissal in U.S. ex. rel. Godsholl v. Covenant Healthcare, following three settlements of the relator’s claims pursuant to the False Claims Act, 31 U.S.C. § 3729 (“FCA”), the Michigan Medicaid False Claim Act, MCL 400.601, et seq., the Federal Anti-Kickback Statute, 42 U.S.C. 1320a-7b(b) (“AKS”), and the Stark Act, 42 U.S.C. § 1395nn (“Stark”), alleging that a regional hospital system engaged in improper financial relationships with referring physicians. The settlement payments total more than $69 million.
Complex AKS/Stark Complaint Survives Rule 9(b) Particularity Challenge – A Guide for FCA Complaints
In U.S. v. Genesis Global Healthcare, 2023 WL 3656925 (S.D. Ga. May 25, 2023), a Georgia district court denied three (3) Motions to Dismiss the Second Amended Complaint filed in a qui tam action brought by relators under the False Claims Act (the “FCA”) and the Georgia False Medicaid Claims Act. The court, having previously held that the relators’ First Amended Complaint amounted to an improper shotgun pleading, found that the Second Amended Complaint adequately remedied the court’s concerns. The court’s ruling reaffirms the pleading standards of claims brought under the FCA and serves as a guide for both courts and parties alike to the pleading requirements a complaint must satisfy to survive a motion to dismiss.
Home Cooking: Washington Transfers Venue to Court in State
Earlier this year, the U.S. District Court for the Western District of Oklahoma granted Washington state’s motion to intervene to transfer venue to the Western District of Washington in James Siegel, M.D. v. Novo Nordisk, Inc. Relator Dr. Siegel originally filed suit in Oklahoma on February 2, 2015, alleging violations of the Federal False Claims Act (FCA), the Washington Medical Fraud False Claims Act, and the Oklahoma False Claims Act, among other state law infractions. On January 23, 2020, Washington intervened, adding additional claims under Washington’s Fraudulent Practices Act. Oklahoma and the federal government did not. The district court dismissed Oklahoma state law claims, and Washington subsequently moved to transfer the case, limited now to FCA and Washington claims, to the federal court in their own state. The court granted their motion.
Temporary Allies: Opposing Parties Successfully Sue VA for FCA-related Discovery
A Kansas federal court recently ruled against the United States Department of Veterans Affairs (VA) in litigation arising out of a discovery dispute brought by the relator and defendant in a separate, pending FCA action. See Schroeder v. United States Department of Veterans Affairs, No. 22-2209-DCC-KGG, 2023 WL 3478052 (D. Kan.). This relatively unique case is based on Plaintiff Thomas Schroeder filing suit against the VA, a non-party to his qui tam action alleging violations of the FCA, after the department declined to produce certain documentation within its sole possession during the FCA case’s discovery phase. Subsequently, Medtronic, Inc., defendant in the qui tam action filed by Schroeder, filed an intervenor complaint in Schroeder’s lawsuit after the VA similarly declined its discovery request too. Not only does this case serve as a unique example of opposing FCA litigants joining together as temporary allies in a separate discovery dispute, this case further suggests that while courts give agencies broad discretion, courts will – absent a rational justification – side with the parties bringing suit, even if orders to compel discovery onto an agency may be rare.
Supreme Court Clarifies the False Claims Act’s Knowledge Requirement, Eliminating a Potential Defense for Government Contractors and Healthcare Providers Accused of Fraud
On June 1, the Supreme Court unanimously ruled in favor of whistleblower plaintiffs in consolidated False Claims Act cases in a decision that clarified the application of the FCA’s knowledge requirement. In United States ex rel. Schutte v. SuperValu Inc., the court held that the FCA reaches defendants who knew the claims they submitted were fraudulent, even if they subsequently offered an “objectively reasonable” interpretation of an ambiguous legal or contractual requirement material to the government’s payment decision.
Read on for analysis of this case and implications for government contractors, healthcare providers and others accused of fraud.
New York Pharmacy Owners Indicted for Alleged Healthcare Fraud Scheme
On May 2, the U.S. Department of Justice announced the indictment of two New York state pharmacy owners for their participation in an alleged $29 million healthcare fraud scheme. They face charges of conspiracy to commit healthcare fraud, conspiracy to commit money laundering and conspiracy to pay illegal healthcare kickbacks and bribes.
Read on for analysis of the case and takeaways for healthcare providers and pharmacies.
Seventh Circuit Upholds Decision In Favor of Insured Party Seeking Coverage for False Claims Act Settlement
On May 3, 2023, the US Court of Appeals for the Seventh Circuit sided with the policyholder, resolving a large insurance coverage dispute relating to a $100 million settlement involving claims under the federal Anti-Kickback Statute and the federal False Claims Act. Astellas US Holding, Inc. v. Fed. Ins. Co., No. 21-3075, 2023 WL 3221737 (7th Cir. May 3, 2023). In so doing, the court held that Illinois public policy does not forbid a liability insurer from covering its insured’s payments to resolve compensatory damages it may owe even if characterized by the government and insured as “restitutionary,” while reiterating that Illinois public policy prohibits insurance for “genuine restitution it owes the victims of its intentional wrongdoing.”[1] Determining the amount of a False Claims Act (“FCA”) settlement that is compensatory in nature was made easier by a change in the tax code implemented by The Tax Cuts and Jobs Act of 2017 requiring all False Claims Act settlements to detail the percentage of the settlement amount that is compensatory in nature (and, therefore, is tax deductible), providing an important marker for policyholders seeking insurance coverage for at least a portion of the settlements they reach to resolve FCA investigations.