Top False Claims Act Developments
Jeffrey S. Bucholtz, William McClintock, and Isabella Wood, King & Spalding LLP
This week’s top False Claims Act (FCA) developments include: remarks from Christi Grimm, Principal Deputy Inspector General at the Department of Health and Human Services (HHS), regarding the agency’s enforcement priorities; the Department of Justice’s intervention in a Medicare Advantage FCA action involving allegedly unsupported diagnoses; a Supreme Court petition for certiorari filed by a healthcare marketing consultant that seeks review of a Fourth Circuit Anti-Kickback Statute decision; and a large jury verdict in an FCA action in Alabama.
1. Principal Deputy Inspector General Emphasizes Enforcement Focus Related to Nursing Homes and COVID-19 Relief Funds
Overview: On September 22, 2021, Principal Deputy Inspector General Christi Grimm delivered a keynote speech to the American Health Law Association Fraud and Compliance Forum. Consistent with her prior remarks, Grimm emphasized the Office of Inspector General’s (OIG’s) enforcement focus on improving nursing home performance and pandemic response oversight. Grimm, whose nomination to serve as Inspector General is pending in the Senate, described OIG as “laser focused” on spurring significant improvements for the safety, health, and welfare of nursing home residents.
Grimm also reiterated OIG’s efforts related to COVID-19 oversight and enforcement, noting that Congress has passed more than $5 trillion in COVID-19-related relief spending since 2020, which is more than all federal spending in 2019. OIG is conducting several audits of the Provider Relief Fund (a federal relief fund for healthcare providers affected by the COVID-19 pandemic) and the Uninsured Fund (a federal relief fund for healthcare providers providing COVID-19 testing, treatment, and vaccine administration to uninsured individuals). Additionally, OIG is working with the Pandemic Response Accountability Committee, which includes Inspectors General from multiple federal departments and is taking a holistic view of program integrity issues, such as duplicate payments across programs.
Grimm also previewed that OIG will be issuing a Request for Information seeking input on how to improve OIG’s publicly available resources. OIG is seeking ways to improve its advisory opinion process, resources related to the OIG List of Excluded Individuals and Entities (the list maintained by OIG of healthcare providers, entities, and other individuals excluded from participation in federally funded healthcare programs), and sub-regulatory guidance documents. For example, OIG recognizes that some view the advisory opinion process as slow and cumbersome and is considering making changes that might help expedite the process and make it more responsive to industry needs.
Our Take: Nursing homes and COVID-19 relief funds are high-priority enforcement areas. We expect to see significant enforcement activity from multiple agencies in those areas. While nursing home enforcement efforts are longstanding, the COVID-19 pandemic has brought additional focus and media attention to nursing home oversight. Additionally, the sheer amount of COVID-19 relief funds, coupled with the often expedited rollout of those funds, means heightened enforcement risk.
2. DOJ Intervenes in Medicare Advantage FCA Action Alleging Unsupported Diagnoses
On September 14, 2021, DOJ announced that it had intervened and filed a complaint in an FCA suit against Independent Health Association, Independent Health Corporation (Independent Health), DxID LLC, and the former Chief Executive Officer of DxID. Independent Health offers Medicare Advantage plans, and its wholly owned subsidiary, DxID, provided retrospective chart review and addenda services to Independent Health and other Medicare Advantage plans.
DOJ alleges that the defendants violated the FCA by submitting or causing the submission of inaccurate information about the health status of beneficiaries enrolled in Medicare Advantage plans in order to increase such plans’ reimbursements. Specifically, DxID allegedly coded conditions for patients that were not documented in those patients’ medical records during the relevant visits or encounters. DxID purportedly asked healthcare providers to sign addenda forms up to a year after a visit or encounter and used the addenda as substantiation for adding diagnoses that were not documented during the patient encounter. DxID allegedly operated on a contingency fee of up to 20% of the additional recovery that the Medicare Advantage plans received based on diagnoses captured by DxID.
The case is United States ex rel. Ross v. Independent Health Association et al., No. 12-CV-0299(S) (W.D.N.Y.).
Our Take: As noted in prior posts (e.g., see here, here, and here), DOJ is increasingly focused on Medicare Advantage and Part C enforcement, with a particular focus on theories related to unsupported diagnosis codes. The fact that the former Chief Executive Officer is included as a defendant underscores DOJ’s continued efforts relating to individual accountability.
3. Healthcare Marketing Company Co-Founder Seeks Supreme Court Review of $114 Million FCA Judgment
Floyd Calhoun Dent, co-founder of a healthcare marketing company called BlueWave, filed a petition for certiorari seeking Supreme Court review of a Fourth Circuit decision affirming a $114 million judgment against him and two co-defendants. BlueWave entered into agreements with specialty labs Health Diagnostics Laboratory, Inc. and Singulex, Inc. whereby, in exchange for BlueWave’s marketing services, the specialty labs paid commissions to BlueWave based on a percentage of revenues from tests ordered by physicians in BlueWave’s territory. DOJ contended the arrangements between BlueWave and the specialty labs violated the Anti-Kickback Statute (AKS). After a two-week trial in 2018, a South Carolina jury found Dent and his co-defendants liable and, in February 2021, the Fourth Circuit affirmed the $114 million judgment against them.
In his petition for certiorari, Dent frames the question presented as whether the AKS prohibits the payment of sales commissions to independent contractors who make marketing presentations to physicians, but who are not medical professionals and do not themselves arrange for or make patient referrals.
Dent contends that BlueWave’s marketing contracts were structured based on negotiations between counsel and that BlueWave hired marketers as independent contractors, rather than employees, on the advice of counsel who concluded that BlueWave did not have the organizational resources to comply with the employment and tax laws of multiple states. Dent contends that he had been advised by counsel that BlueWave’s conduct complied with all applicable laws, including the AKS.
Among other arguments, Dent contends that the jury should have been allowed to consider his advice-of-counsel defense and that he did not have fair warning that the compensation structure with the specialty labs would be found to violate the AKS. Dent also argues that the Fourth Circuit’s decision creates a split with the Fifth Circuit regarding whether the AKS prohibits the payment of commissions to non-employee marketers who neither participate in nor make referrals for medical services.
Our Take: This case is a powerful reminder that business practices that may be common in other industries can lead to significant financial consequences in the healthcare industry. Because so many AKS-based FCA cases settle, judicial guidance about the contours of the AKS is limited. If the Supreme Court grants certiorari, the healthcare industry will follow this case closely.
4. Alabama Jury Returns Verdict Against Defense Contractor after FCA Trial
On September 24, 2021, a federal jury in the Northern District of Alabama returned a $36.8 million verdict against MD Helicopters, a defense contractor. The verdict is subject to potential trebling plus the addition of statutory penalties. The suit was initially filed in 2013, and DOJ declined to intervene in the case in 2014.
Relators alleged that MD Helicopters violated the FCA by fraudulently inducing the government to enter into certain helicopter contracts based on representations that it intended to comply with Federal Acquisition Regulations § 52.203-13, known as the Contractor Code of Business Ethics and Conduct. MD Helicopters allegedly violated that regulation as a result of an improper relationship, involving bribes and gratuities, with an Army officer involved in awarding government contracts. The case is United States ex rel. Marsteller v. MD Helicopters, Inc., 5:13-cv-00830 (N.D. Ala.).
Our Take: This sizable verdict illustrates that FCA cases in which DOJ does not participate can result in significant liability. Relators’ counsel litigated this case for many years, all the way through a jury trial, after DOJ declined to intervene.
Also in the News
DOJ Announces $447.2 Million Settlement with Three Pharmaceutical Companies Regarding Generic Drug Price-Fixing Allegations – On October 1, 2021, DOJ announced a settlement totaling $447.2 million involving three generic pharmaceutical manufacturers, Taro Pharmaceuticals USA, Inc., Sandoz Inc., and Apotex Corporation, to resolve FCA claims arising from alleged price-fixing. DOJ alleged that all three companies paid and received compensation prohibited by the Anti-Kickback Statute through arrangements on price, supply, and allocation of customers with other pharmaceutical manufacturers. Each company also agreed to enter into five-year Corporate Integrity Agreements that include internal monitoring and price transparency provisions. Previously, each company entered into deferred prosecution agreements with the Antitrust Division to resolve related criminal charges.
Energy Company Settles FCA Allegations Related to Gas Royalties – On September 27, 2021, DOJ announced that Devon Energy Companies had entered into a $6.15 million settlement to resolve allegations that it had violated the FCA by underpaying and underreporting royalties for natural gas from federal lands.
Jeff Bucholtz is a partner in the Appellate, Constitutional and Administrative Law practice in the Washington, D.C. office of King & Spalding LLP. William McClintock is a senior associate in King & Spalding’s Washington, D.C. office and a member of the firm’s Special Matters and Government Investigations practice. Isabella Wood is a senior associate in King & Spalding’s Atlanta office and a member of the firm’s Healthcare practice.