On March 17, 2015, the First Circuit Court of Appeals reversed a District Court decision, holding that a counseling services’ failure to comply with state licensing requirements is a condition to payment under the False Claims Act.
The False Claims Act qui tam case at issue, US ex rel. Escobar v. Universal Health Services, Inc., was filed in the United States District Court for the District of Massachusetts. The suit alleges that Julio Escobar and Carmen Correa’s daughter, Yarushka Rivera, who died of a seizure in 2009, was treated by unlicensed and unsupervised staff at Arbor Counseling Services, a facility owned and operated by Universal Health.
Universal Health, according to the complaint, provided mental health services by unlicensed, unaccredited, and unsupervised therapists in violation of regulations set by MassHealth, a healthcare program administered by the Commonwealth of Massachusetts. Under MassHealth, mental health providers are required to employ qualified staff members as a condition to payment.
An unlicensed therapist employed by United Health then prescribed Trileptal to Rivera. Trileptal is a behavioral medication allegedly known to cause seizures after abrupt withdrawal. On May 13, 2009, Rivera suffered a fatal seizure after the unlicensed Universal Health therapist discontinued the medication.
In March 2014, the District Court dismissed the suit, concluding that Escobar’s claims were not actionable under the FCA because licensing requirements involve conditions for participation, rather than payment. Further, the District Court held that the FCA is designed to address financial fraud on the government rather than police general regulatory compliance.
The First Circuit, in reversing the District Court’s decision, held that Universal Health’s claims for reimbursement were within the meaning of the FCA. The Court of Appeals reasoned that services are only reimbursable when MassHealth standards are met.
In arriving at this decision, the First Circuit “ask[ed] simply whether the defendant, in submitting a claim for reimbursement, knowingly misrepresented compliance with a material precondition of payment.”
The False Claims Act allows private citizens with knowledge of false claims to bring civil actions on behalf of the United States government and to share in the recovery from these actions. These private citizens, known as relators, may receive a portion of the government’s recovery even if the actions are settled. The following are examples of three settled false claims (or “qui tam”) actions in which the relators received large monetary sums as their share.
AstraZeneca entered into a settlement agreement for $7.9 million with the United States to resolve allegations that the company agreed to provide remuneration to a pharmacy benefits manager in exchange for maintaining exclusive status to formularies. The relator received $1.42 million from the settlement.
California-based C.R. Laurence Co. Inc., Florida-based Southeastern Aluminum Products Inc., and Texas-based Waterfall Group LLC agreed to pay $2,300,000, $650,000 and $100,000, respectively, to resolve a qui tam action. The action alleged that the companies schemed to elude customs duties on imports. The relator received a $555,000 reward. Customs regulations are in place to level the playing field between companies who purchase products domestically and those who import their products. Evading customs regulations poses serious harm to United States manufacturers.
Ageless Men’s Health, LLC agreed to pay $1.6 million to the United States to resolve allegations that it billed Medicare and Tricare for medically unnecessary evaluation and management services. Medicare and Tricare will only reimburse for medically necessary procedures. The relator and the United States alleged that Ageless Men’s Health improperly billed for each office visit during which a testosterone shot was administered. The relator will receive $250,000 from the settlement.
On February 5, 2015, Maryland proposed a new, expanded state False Claims Act that would better allow Maryland to deter and recover damages for fraud against the state. Maryland Attorney General Brian Frosh urged adoption of the Act, which would expand Maryland’s current limited version that only applies to Medicaid and health-care related fraud.
Under the proposed False Claims Act, Maryland may receive triple the damages for its losses, while the whistleblower who initiates the claim is allowed to receive a portion of the state’s recovery and is also protected against retaliation in the work place. The state’s current version of the Act has allowed it to recover $28 million a year in each of the past two years from Medicaid-related cases alone. Adopting the proposed expansion will allow Maryland to achieve greater success in deterring fraud and recovering funds, much like the federal government.
Under the federal False Claims Act, the federal government recouped nearly $5 billion in 2012. To incentivize states to adopt laws more closely mirroring the federal False Claims Act, the federal government, under the Deficit Reduction Act of 2005, allows states to collect an additional 10% of federal Medicaid funds recovered through a state action.
CareAll Management, a home healthcare provider based in Nashville, Tennessee, recently agreed to pay $25 million to settle charges that it violated the False Claims Act by submitting false and “upcoded” billings to Medicare and Medicaid. The settlement resolves a suit filed in the U.S. District Court for the Middle District of Tennessee. The suit alleged that CareAll overstated the severity of patients’ conditions to increase billings (upcoding) and billed for services that were not medically necessary and were rendered to patients who were not homebound. CareAll is one of the largest home healthcare providers in Tennessee.
As part of the settlement, the relator, Toney Gonzales, will receive more than $3.9 million as his share of the total recovery. Gonzales brought the lawsuit against CareAll under the qui tam provisions of the False Claims Act, which allows private citizens to sue on behalf of the United States for fraudulent uses of federal funds (including Medicare and Medicaid) and to share in any recovery.
The CareAll settlement illustrates efforts by the Department of Justice (DOJ) to make home healthcare fraud a bigger enforcement priority. In many cases, the government is criminally prosecuting the individuals responsible for the fraud in addition to the corporate entity. In the same week that it announced the CareAll settlement, DOJ reached multi-million dollar settlements involving three other home healthcare fraud schemes. These settlements mark the success of the Health Care Fraud Prevention and Enforcement Action Team (HEAT) initiative, a partnership between the Attorney General and the Secretary of Health and Human Services to increase efforts to prevent Medicare and Medicaid fraud.
In United States ex rel. Karin Berntsen v. Prime Healthcare Services, Inc. et al., the U.S. District Court for the Central District of California denied Prime Healthcare’s motion to dismiss, ruling that a False Claims Act qui tam action cannot be dismissed under the “public disclosure bar” if the Government has opposed dismissal on that basis.
The False Claims Act prevents a private party from bring a qui tam action where the alleged fraud is already publicly known (this is often referred to as the public disclosure bar). In this case, Karin Berntsen, the relator, alleged that she was the original source of the information underlying her qui tam complaint and that she made these disclosures to the government before filing her lawsuit. But Prime Healthcare and the other defendants moved to dismiss, in part, because they claimed that Berntsen was not the original source. In support of their motion, they identified a number of publicly-available reports and articles regarding their allegedly fraudulent practices.
The relator argued that because the Government opposed the dismissal of the complaint on the basis of the public disclosure bar, the district court was barred from dismissing the complaint on that basis. The court agreed with the relator. The court also acknowledged a lack of legal authority on the issue and reviewed Congress’s intent in creating the public disclosure bar: to strike a balance between encouraging private persons to root out fraud and stifling parasitic lawsuits. Since the Government, through its opposition to the dismissal, had indicated that it supported the relator’s qui tam action, the court found that it would be “illogical” for it to conclude that the relator’s action was parasitic, and thus allowed the relator’s qui tam action to proceed.
The Department of Justice announced that Caremark, a pharmacy benefit management (PMB) company, will pay $6 million to settle allegations that it violated the False Claims Act; and the former Caremark employee who blew the whistle on the violations will receive $1.2 million from the settlement. Caremark allegedly knowingly failed to reimburse Medicaid for the cost of drugs for beneficiaries who were covered by both Medicaid and a private health plan. These patients are referred to as “dual eligible” and their private insurer or PMB must assume the cost of the prescription drugs rather than submit claims to Medicaid.
If Medicaid pays for the drugs when a private insurer or PMB should have assumed the cost, the private insurer or PMB must reimburse Medicaid. Caremark caused Medicaid to pay the drug costs when Caremark should have paid.