Welcome to Original Source: The Sidley Austin False Claims Act Blog

The False Claims Act (FCA) has long been a key enforcement tool for the federal government in matters involving government contracts or other expenditures of government funds. FCA enforcement has traditionally focused primarily on two industries receiving a substantial amount of government funds: healthcare and defense and other government contractors. Recently, however, FCA enforcement has expanded to other industries, including financial services. Through the False Claims Act Blog, lawyers in Sidley’s White Collar, Healthcare, FDA, Government Contracting, Financial Services, Appellate, and other practices will provide timely updates on new and interesting developments relating to FCA enforcement and litigation.

Inflationary Adjustments to Civil Monetary Penalties Take Effect Less than Six Months After the Last Increase

This week the Department of Justice (“DOJ”) published inflationary adjustments to civil monetary penalties.  This increase takes effect less than six months after the last increase and indicates that DOJ is eager to return to a more regular cadence after a period of less frequent inflationary adjustments (see here).  DOJ is likely eager to implement penalties that reflect the rising inflation rate, which is currently at a forty-year record high.  As we previously reported, the 2015 Balanced Budget Act (BBA) provides for federal agencies to make inflationary adjustments to civil monetary penalties on January 15 of each year to account for inflation using calculations based on the Bureau of Labor Statistics’ Consumer Price Index.  After an inflationary update in January 2018, only two updates have occurred until now: an update in June 2020 and a recent update in December 2021.  The revised penalties will be assessed for violations that occurred prior to the adjustment, but are assessed after May 9, 2022.  As of May 9, 2022, the minimum False Claims Act penalty of $11,803 has increased to $12,537 per claim. The maximum penalty has increased from $23,607 to $25,076 per claim.

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Recently Unsealed Complaint Reinforces Potential Liability of Private Equity Investors in the Healthcare Industry

Recently, a court in the Central District of California unsealed a qui tam complaint against several specialty pharmacies and their private equity fund owners. See United States ex rel. Webster v. BioMatrix Holdings, LLC, 2:18-cv-09333-PSG-PLA (C.D. Cal. Oct. 31, 2018). Relator, a former Vice President for Managed Care at BioMatrix Specialty Pharmacy, alleged that the specialty pharmacy defendants (collectively “BioMatrix”), with the knowledge of their private equity owners, employed a kickback scheme to increase the number and value of prescriptions for hemophilia medications filled through their pharmacies.

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Latest DOJ COVID Crackdown Features Another Defendant Accused of Abusing Telehealth Waivers

With its latest announcement this week of a criminal crackdown of 21 defendants for their alleged participation in various health care related fraud schemes, DOJ has underscored its commitment to aggressively pursue individuals and companies alleged to have exploited the COVID-19 pandemic. Among these actions are a collection involving alleged billing fraud arising from COVID testing; one set of defendants is alleged to have taken the data from patients seeking COVID tests and submitting bills to the federal healthcare programs for office visits that never occurred, while another set of actions involve obtaining patient samples and then billing for more expensive lab tests. Still others involve defendants alleged to have sold fake COVID vaccination cards.

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Settlement Highlights Ongoing Interest in Kickbacks Affecting Non-Federal Healthcare Programs

Earlier this week, two laboratory testing companies paid $42.25 million to resolve allegations that they violated the California and federal FCAs, as well as the California Insurance Frauds Prevention Act (“CIFPA”), by paying kickbacks to induce physicians to order a specialized lab test for auto-immune and inflammatory diseases. The kickbacks allegedly took the form of inflated processing fees and caps on patient cost-sharing obligations.  See United States ex rel. STF, LLC v. Crescendo Bioscience, Inc., No. 16-cv-2043 (N.D. Cal.). DOJ and the State of California declined to intervene, and the laboratory testing companies entered into this settlement with the relator to resolve ongoing litigation. The settlement highlights increasing enforcement risk arising from kickback allegations affecting non-federal healthcare programs, which are not directly subject to the Anti-Kickback Statute or the FCA.

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DOJ Settles FCA Case Alleging Medically Unnecessary Telehealth Visits, Claws Back PPP Money

This week DOJ announced one of the first civil settlements under the FCA involving abuse of the pandemic flexibilities that the Department of Health and Human Services used to authorize broader use of telehealth during the COVID public health emergency.  Physician Partners of America (“PPOA”) agreed to pay $24.5 million to resolve allegations that it violated the FCA by billing for medically unnecessary telehealth visits, and by submitting claims for medically unnecessary genetic, psychological, and urine drug tests and claims tainted by violations of the Stark Law.  While DOJ has previously engaged in criminal enforcement actions relating to abuse of the telehealth waiver flexibilities, as discussed further here, this case represents an expansion of telehealth enforcement scrutiny to the civil side.

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New Pharmacy, Same Result: Seventh Circuit Holds That Objective Reasonableness Dooms “Usual and Customary” Pricing Case

On April 5, 2022, in a 2-1 decision, the Seventh Circuit applied the precedent it set in United States ex. rel. Schutte v. SuperValu Inc., 9 F.4th 455 (7th Cir. 2021) (discussed here) and found once again that a defendant retail pharmacy did not act with “reckless disregard” under the False Claims Act (“FCA”) by interpreting Medicare Part D and Medicaid “usual and customary” price requirements as allowing it to charge those programs its retail cash prices rather than prices offered through discount programs. United States ex rel. Proctor v. Safeway, Inc., No. 20-3425, 2022 WL 1012256 (7th Cir. Apr. 5, 2022).

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District Court Again Dismisses Anti-Kickback Statute Claim Related to Medical Devices Used in Bariatric Surgeries

A court in the District of Maryland again dismissed a declined qui tam action in which the relator, a bariatric surgeon, alleged that two medical device companies violated the AKS by providing surgeons with free advertising in exchange for physicians using the companies’ LAP-BAND medical devices in bariatric surgeries. See United States ex rel. Fitzer v. Allergan, Inc., 17-cv-00668 (D. Md. Mar. 22, 2022).  We reported on the court’s prior dismissal of the relator’s second amended complaint for failure adequately to plead a knowing and willful violation of the AKS here. Relator fared no better on his third attempt; as the court found, he failed to adequately plead presentment and causation.

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