By Kenneth B. Julian, Partner | John F. Libby, Partner | Jacqueline C. Wolff, Partner
Why it matters: Pronouncements by DOJ officials in April 2017 signaled that the DOJ will be "business as usual" with respect to pursuing white collar crime, including the False Claims Act. Read on for a recap of some of this year's FCA resolutions and actions.
Detailed discussion: Following is a recap of some of the FCA resolutions and actions announced this year that we found to be of interest. See our article in the May 2017 Corporate Investigations and White Collar Defense newsletter titled "Eye on the Circuit Courts" for a discussion of a May 1, 2017, Third Circuit opinion where the court affirmed the district court's dismissal of an FCA qui tam lawsuit but on alternate grounds based on an analyses and application of the Supreme Court's materiality test established in the 2016 Escobar case.
One of the most significant recent FCA actions by the DOJ is the May 2, 2017, announcement that the agency had intervened with respect to defendant UnitedHealth Group Inc. in a Central District of California FCA case, United States ex rel. Swoben v. United Healthcare Group et al. In its press release, the DOJ described UHG as "the nation's largest Medicare Advantage Organization (MAO), with more than 50 Medicare Advantage and Drug Prescription plans providing healthcare services and prescription drug benefits to millions of Medicare beneficiaries throughout the United States." The DOJ said that its complaint alleged that "UHG obtained inflated risk adjustment payments based on untruthful and inaccurate information about the health status of beneficiaries enrolled in UHG's largest Medicare Advantage Plan, UHC of California" and described its other allegations against UHG as follows:
"UHG knowingly disregarded information about beneficiaries' medical conditions, which increased the payments UHG received from Medicare. In particular, the lawsuit contends that UHG funded chart reviews conducted by HealthCare Partners (HCP), one of the largest providers of services to UHG beneficiaries in California, to increase the risk adjustment payments received from the Medicare Program for beneficiaries under HCP's care. However, UHG allegedly ignored information from these chart reviews about invalid diagnoses and thus avoided repaying Medicare monies to which it was not entitled."
We first discussed the Swoben case in our September 2016 newsletter under our regular feature "Spotlight on the False Claims Act." To briefly recap, in August 2016, the Ninth Circuit vacated a Central District of California court's judgment that had dismissed without leave to amend the third amended complaint of qui tam relator James Swoben. Swoben had alleged that the defendant MAOs UHG and others submitted false certifications to the Centers for Medicare & Medicaid Services in connection with risk adjustment data, in violation of the FCA. The Ninth Circuit remanded the case with instructions to allow Swoben to file a proposed fourth amended complaint, finding that the fourth amended complaint sufficiently alleged that the defendants violated the FCA by using biased review procedures designed to not reveal erroneously reported diagnosis codes. Flash forward to December 2016, when the Ninth Circuit issued a largely "form over substance" amended opinion in Swoben (that is, the amended opinion spoke to the heightened pleading standards required by Rule 9(b) of the Federal Rules of Civil Procedure rather than to the "substance" of the ruling under the FCA, which was unchanged). Relevant here, and perhaps a foreshadower of the DOJ's decision to intervene in the case against UHG a few months later, the Ninth Circuit found that the relator's proposed fourth amended complaint satisfied Rule 9(b)'s heightened pleading standards solely with respect to UHG, and that the "broad" allegations contained in the fourth amended complaint against the other defendants were not sufficient under Rule 9(b) (although the court said that Swoben should still be afforded leave to amend against the other defendants) (see our discussion of the amended Swoben opinion in our February 2017 newsletter under "Spotlight on the False Claims Act").
In its press release, the DOJ said that its decision to intervene in Swoben against UHG followed its intervention in February 2017 in United State ex rel. Poehling v. UnitedHealth Group, Inc., a related lawsuit in the Central District of California with similar allegations that UHG defrauded the Medicare program. The DOJ filed its complaint in Poehling on May 16, 2017. These cases will be ones to watch.
The following are two other recent notable healthcare FCA resolutions that caught our eye because they also involve allegations concerning the violation of the federal Anti-Kickback Statute. We also wanted to draw readers' attention to an article by our Manatt colleagues in the April 2017 Health Update newsletter titled "CMS Issues Self-Referral Disclosure Protocol for Stark Law Violations," by Robert D. Belfort and Julia Smith.
- On April 27, 2017, the DOJ announced that Indiana University Health Inc. and a health insurer agreed to pay a total of $18 million to resolve allegations that they violated the federal and state FCAs and the AKS by "engaging in an illegal kickback scheme" involving the referral of OB/GYN patients to IU Health's Methodist Hospital. The DOJ alleged (which allegations were neither admitted nor denied by IU Health) that from 2013 to 2016, IU Health provided a health insurance company "with an interest-free line of credit, the balance of which consistently exceeded $10 million." The DOJ further alleged that the health insurance company was "not expected to repay a substantial portion of this loan and that this financial arrangement was intended to induce [the insurer] to refer its OB/GYN patients to IU Health's Methodist Hospital." Under the settlement, IU Health and the health insurer each agreed to pay approximately $5.1 million to the DOJ and $3.9 million to the state of Indiana. Qui tam whistleblower to receive an award of $2.8 million.
- On April 25, 2017, the DOJ announced that California-based Braden Partners, L.P., doing business as Pacific Pulmonary Services, agreed to pay $11.4 million to resolve allegations against it and its general partner, Teijin Pharma USA LLC, that they violated the FCA by "submitting claims for reimbursement to Medicare and other federal healthcare programs for oxygen and related equipment supplied in violation of program rules, and for sleep therapy equipment supplied as part of a cross-referral kickback scheme with sleep clinics." The DOJ alleged (which allegations were neither admitted nor denied by PPS) that, commencing in 2004, PPS "began submitting claims to the Medicare, TRICARE and Federal Employee Health Benefits programs for home oxygen and oxygen equipment without obtaining a physician authorization, as required by program rules." The DOJ also alleged that, starting in 2006, a number of the company's patient care coordinators agreed to make patient referrals to sleep testing clinics in exchange for those clinics' agreement to refer patients to PPS for sleep therapy equipment, in violation of the AKS. Qui tam whistleblower to receive an award of $1.8 million.
Finally, here are a few of the recent nonhealthcare FCA resolutions that we found to be of interest:
- On April 24, 2017, the DOJ announced that Georgia-based Energy & Process Corp. agreed to pay $4.6 million to resolve allegations that it violated the FCA by "knowingly" failing to perform required quality assurance procedures and supplying defective steel reinforcing bars (rebar) in connection with a contract to construct a Department of Energy nuclear waste treatment facility. According to the DOJ's allegations (which were neither admitted nor denied by E&P), the DOE paid E&P a premium to supply rebar that met "stringent" regulatory standards for the Mixed Oxide Fuel Fabrication and Reactor Irradiation Services facility at the DOE's Savannah River site near Aiken, SC, but that "E&P failed to perform most of the necessary quality assurance measures, while falsely certifying that those requirements had been met." The DOJ further alleged that "one-third of the rebar supplied by E&P and used in the construction was found to be defective" and had to be replaced by E&P. Qui tam whistleblower award not yet determined.
- On April 12, 2017, the DOJ announced that the Wisconsin Department of Health Services agreed to pay approximately $7 million to resolve allegations that it violated the FCA in its administration of the Supplemental Nutrition Assistance Program (formerly known as the Food Stamp Program). As part of the settlement, WDHS admitted that, beginning in 2008, it utilized the services of Julie Osnes Consulting, a quality control consultant, to review the error cases identified by WDHS quality control workers. WDHS further admitted that, based on instructions from JOC, it implemented several "improper and biased" quality control practices which "improperly decreased WDHS's reported error rate, and as a result, WDHS earned performance bonuses for 2009, 2010, and 2011 to which it was not entitled." The DOJ said that the resolution with WDHS follows its similar resolution a week earlier on April 7, 2017, with the Virginia Department of Social Services, which also agreed to pay approximately $7 million to resolve allegations that it violated the FCA in its administration of SNAP to the extent that it also used JOC "to improperly reduce its reported error rate."
- On March 10, 2017, the DOJ announced that New York-based information technology management software and services company CA Inc. (CA) agreed to pay $45 million to resolve allegations that it violated the FCA by making false statements and claims in the negotiation and administration of a General Services Administration contract. According to the DOJ's allegations (which were neither admitted nor denied by CA), CA failed to fully and accurately disclose its discounting practices to GSA contracting officers. In addition, the DOJ alleged that CA "provided false information about the discounts it gave commercial customers for its software licenses and maintenance services at the time the contract was negotiated in 2002 and was extended in 2007 and 2009." Finally, the DOJ alleged that "CA violated the price reduction clause in the contract by not providing government customers with additional discounts when commercial discounts improved." Qui tam whistleblower to receive award of almost $10.2 million.