Tuesday, August 25, 2015

Billing Medicaid and Medicare for unlicensed, unnecessary detox services costs Specialcare and NY hospitals $8 million

SpecialCare Hospital Management Corp. and three New York hospitals agreed this week to pay a total of more than $8 million to New York and the federal government to settle a whistleblower lawsuit and government charges alleging they defrauded the Medicaid and Medicare programs.

The case alleged that the three hospitals - Columbia Memorial Hospital in Hudson, St. Joseph's Medical Center in Yonkers and Benedictine Hospital in Kingston - each paid Specialcare Hospital Management Corp. monthly fees disguised as administrative services in exchange for referring patients to their unlicensed inpatient detoxification units for drug and alcohol treatment. In addition, the inpatient detoxification services allegedly were neither medically necessary nor did they meet professionally recognized standards of care.

"Drug and alcohol treatment programs are designed to help vulnerable people struggling with addiction," Attorney General Eric T. Schneiderman said in a press release. "By exploiting their need and the Medicaid program in order to maximize revenue, SpecialCare Hospital Management Corporation, St Joseph's Medical Center, Benedictine Hospital and Columbia Memorial Hospital wasted Medicaid resources and illegally billed taxpayers for unlicensed and medically unnecessary treatment services."

SpecialCare and the for-profit vendor's Chief Executive Officer Robert McNutt agreed to pay a total of $6 million and submit to a five-year injunction on doing business with any Medicaid or Medicare providers in New York. Each of the hospitals agreed to separate settlements totaling more than $2 million to resolve allegations that they submitted false claims for inpatient detoxification services.

Two whistleblowers sparked the investigation after filing a "qui tam" (False Claims Act) complaint. In previous settlements of this case, New York Downtown Hospital in New York, New York paid $13.4 million in 2012 and Our Lady of Mercy Medical Center in Bronx, New York paid $4.5 million in 2008 for allegedly making false claims to Medicaid and Medicare.

Wednesday, August 19, 2015

BNY Mellon settlement of FCPA case shows that foreign bribery involves more than cash payouts

Following the Bank of New York Mellon's settlement with the SEC this week, expect to see more Wall Street banks settle foreign bribery allegations involving the practice of hiring relatives of sovereign wealth fund managers.

According to the Securities Exchange Commission (SEC), BNY Mellon hired three family members of two foreign fund officials for highly sought-after internship positions in 2010 at the officials' request. A BNY Mellon account manager reportedly wrote in a February 2010 email that the company was "not in a position to reject the request from a commercial point of view."

Although the Middle Eastern foreign fund was not named, the SEC alleged that the hire request came after the fund entered into an agreement with BNY Mellon to manage over $700 million in assets. 

The SEC said BNY Mellon violated the Foreign Corrupt Practices Act (FCPA) by providing the unqualified relatives with internships and special privileges. The FCPA was enacted in 1977 in order to maintain transparency and to prevent the bribery of foreign officials.

SEC Enforcement Director Andrew Ceresney said in a statement, "The FCPA prohibits companies from improperly influencing foreign officials with 'anything of value,' and therefore... internships or anything else used in corrupt attempts to win business can expose companies to an SEC enforcement action."

BNY Mellon agreed to a $14.8 million settlement with the SEC. While the bank did have anti-bribery and corruption policies in place, the policies did not address the hiring of relatives of foreign officials.

With this case and its investigation into other banks' practices of hiring relatives of foreign officials, the SEC has made clear that anti-bribery violations can involve more than bags of cash.

Friday, August 14, 2015

Whistleblower lawsuit in Texas alleges fraud by Medicare Advantage plans through home visit health assessments

News reports are once again highlighting fraud by MedicareAdvantage plans to boost their revenues. The most recent whistleblower case that has been made public involves home health visits.

 The “qui tam”(whistleblower) lawsuit alleges that CesneoHealth, which provides home visit health assessments, had been exaggerating the severity of their elderly patients’ illnesses to increase Medicare payments to the plans.

The lawsuit, filed in Texas, targets CesneoHealth and 30 Medicare Advantage plans in fifteen states, including multiple Blue Cross and Humana Inc. plans. These private insurance plans receive monthly per-patient payments from Medicare based on the estimated risk factor of the patients.

The case alleges that home visits to elderly patients resulted in diagnoses based on little more than self-reported conditions and brief evaluations. Many of the doctors reportedly were practicing without a license or making up to ten visits a day for a flat rate of $100 per visit. According to the whistleblower lawsuit, those visits increased risk scores improperly, leading to substantial overpayments to the health plans.

There are now at least a half dozen whistleblower cases that have been made public alleging billing fraud by Medicare Advantage plans, according to the Center for Public Integrity, an investigative journalism nonprofit.

A 2014 Center for Public Integrity investigation found that billions of tax dollars were being spent annually on fraudulent claims of high risk factors for elderly at-home patients to manipulate Medicare payments.

SEC takes action to clean up municipal bond underwriting

The Securities and Exchange Commission (SEC) took a major step this week with its efforts to clean up municipal bond underwriting with the announcement of a $20 million settlement with brokerage firm Edward Jones.

An SEC investigation found that Edward Jones, based in St. Louis, neglected to offer customers new bonds at the standard “initial offering price” and instead offered the bonds at higher prices that came from the firm’s own inventory.

The SEC also found that in some cases Edward Jones waited to offer bonds to customers until after trading commenced in the secondary market and prices were significantly higher than the initial offering prices. This exploitation cost customers more than $4.6 in excess payments. 

The settlement calls for Edward Jones to pay $5.2 million to current and former customers who overpaid for their bonds as part of the settlement.

Andrew J. Ceresney, director of the SEC Enforcement Division, stated that “This enforcement action, which is the first of its kind, reflects our commitment to addressing abuses in all areas of the municipal bond market.” We expect to see the SEC bring more of these types of cases.

Friday, August 07, 2015

Glaxo rehires China executive thought to be whistleblower

In a surprising move this week, GlaxoSmithKline rehired Vivian Shi, a former executive suspected of making the fraud and corruption allegations against Glaxo that led to $500 million in fines to China in 2014.

Although the company never publicly accused Shi of being a whistleblower, she was fired from her position as head of government relations in China in 2012. This occurred after Chinese government agencies and Glaxo officials in the UK received anonymous emails that alleged fraud and corruption in Glaxo’s China operations.

Five Glaxo executives later were charged and given prison sentences in China for their involvement in bribing Chinese hospitals and doctors and channeling illicit kickbacks.

In 2012, Glaxo paid $3 billion to the US to settle a whistleblower case brought by Phillips & Cohen and other cases alleging off-label marketing and kickbacks. It was the largest healthcare fraud settlement ever made.

Following the US settlement and news about the corruption allegations in China, Glaxo said it made major changes to its sales program globally, including changing its sale incentive programs. 

Friday, July 31, 2015

Whistleblower and fraud news summary for week of July 31

NuVasive Inc. has agreed to pay the government $13.5 million to settle allegations that the California-based medical device company submitted false claims by paying kickbacks to physicians to promote the use of the CoRent System for non-FDA approved surgical purposes. (Medical Device Manufacturer NuVasive Inc. to Pay $13.5 Million to Settle False Claims Act Allegations)

Two Detroit-area home health care company owners were convicted of multiple offenses including paying and receiving kickbacks, and conspiracy to commit health care fraud in a $33 million Medicare fraud scheme. (Detroit-Area Home Health Care Agency Owners Convicted in $33 Million Medicare Fraud Scheme

Owner of Miami-based Naranja Pharmacy pleaded guilty to submitting more than $1.8 million in fraudulent claims to Medicare. The pharmacy submitted claims to Medicare for prescription drugs that weren’t prescribed by physicians, weren’t medically necessary and weren’t provided to Medicare beneficiaries. (Miami-Area Pharmacy Owner Pleads Guilty to Role in $1.8 Million Medicare Fraud Scheme

Whistleblower champion Grassley highlights the power of the False Claims Act and whistleblowers

Long-time whistleblower champion Sen. Chuck Grassley (Iowa-R) took to the Senate floor this week to talk about the False Claims Act and the important role that whistleblowers play to stop fraud. He reminds his colleagues “to stand strong for the most effective tool we have to combat fraud": the False Claims Act with its qui tam (whistleblower) provisions.

Some excerpts:

"Whistleblowers have always been crucial in helping Congress and the federal Government route out fraud and misconduct. It is simple common sense to reward and protect whistleblowers who report waste, fraud, and abuse. The False Claims Act does that."

"In Fiscal Year 2014 alone, the federal Government recovered nearly $6 billion under the Act. That makes more than $22 billion since January 2009, and more than $42 billion since 1986. These recoveries represent victories across a wide array of industries and government programs.  Those programs include mortgage insurance, federal student aid, and Medicare and Medicaid, as well as Defense contracts."

"The Department of Justice credits whistleblowers for their important role in this success. According to the Justice Department, whistleblowers accounted for $3 billion in recoveries under the Act in Fiscal Year 2014. In fact, over 80% of False Claims Act cases are initiated by whistleblowers.  Clearly the False Claims Act is working very well."

"Congress intended to empower, protect, and reward relators who identify fraud against the taxpayers.  History teaches us that weakening the relator’s rights weakens the government’s ability to fight fraud.  All that does is let wrongdoers off the hook and cost the taxpayers money."

Tuesday, July 21, 2015

Whistleblowers who are minor participants in fraud may be better off reporting fraud before the government finds out

Last week, in Schroeder v. United States, the Ninth Circuit joined several other courts in holding that a False Claims Act whistleblower must be dismissed from a suit if he or she is convicted of criminal conduct arising from the fraudulent conduct at issue in the FCA case, even if the whistleblower was only a minor participant. 

The Ninth Circuit held that the FCA’s provision requiring dismissal of whistleblowers convicted of related criminal conduct was unambiguous. The court brushed off the whistleblower’s argument that mandatory dismissal of minor participants in the fraud is illogical because the statute allows unconvicted whistleblowers who “planned and initiated” the fraud to receive a reward. 

The decision should send a signal that delay in coming forward to stop a fraud can hurt, or even negate, whistleblowers’ rights under the FCA. In our experience, the United States rarely, if ever, prosecutes minor wrongdoers who step forward voluntarily to tell the government about a fraud about which the government was unaware.

But if the government finds out about the fraud before the whistleblower comes forward, it may choose to make its case by charging minor offenders and then cutting deals with them to gain evidence against more senior wrongdoers. A person who fears criminal prosecution for her minor role in a fraud hatched by her bosses might be able to avoid that prosecution by voluntarily providing information about the fraud to the government.

That strategy won’t work, though, if the person waits too long to approach the government. The key to Schroeder was that the court found that the whistleblower only approached the government after he learned that Department of Energy agents were already investigating the fraud. If he had approached the government sooner, he might have avoided prosecution and might have been allowed to receive a reward for the government’s recovery.

The lesson is clear: If you are considering blowing the whistle on a fraud in which you participated in even a small way, get in touch with a lawyer immediately to review your options. You may find that it doesn’t pay to wait to blow the whistle. 

  • Schroeder v. United States v. CH2M Hill, ___ F.3d ___, 14 C.D.O.S. 7782 (9th Cir. Jul. 16, 2015)
  • 31 U.S.C. § 3730(d)(3)

Monday, July 20, 2015

Court decision in Tuomey case sheds light on the meaning of falsity

Earlier this month, a panel of three judges in the Fourth Circuit handed down the latest chapter in United States ex rel. Drakeford v. Tuomey Healthcare Sys., Inc., a False Claims Act case based on Stark Law violations that was filed in 2005. The decision touched on a number of important issues, including when an interpretation of a statute that is disputed can be “false” under the False Claims Act. This issue that has been a source of confusion.

The Fourth Circuit’s opinion in Tuomey, issued July 2, clarifies that evaluating whether representation of compliance with a statute is false is an objective inquiry — answerable by yes or no — whereas the defendant’s subjective belief about compliance is a question of scienter. The court’s treatment of falsity and scienter as two discrete inquiries resists previous constructions espoused by defendants both in Tuomey and other cases, which sought to collapse the two requirements into one subjective inquiry. 

To recap, in 2000 Tuomey Hospital began searching for a way to boost declining revenue that had been lost as gastroenterologists began performing more outpatient surgeries in their own offices instead of at Tuomey. To counteract this, Tuomey proposed part-time employment arrangements with the doctors in exchange for the doctors performing outpatient procedures at Tuomey.

When the relator, Dr. Drakeford, expressed concern that these arrangements violated the Stark Law, Tuomey and Drakeford jointly sought the advice of an attorney. The attorney warned Tuomey that the contracts raised “red flags” and presented a risk for prosecution under Stark. Unsatisfied with this advice, Tuomey sought other legal advice, eventually obtaining several more favorable opinions. The case eventually went to trial, and after an initial jury verdict was vacated and a second trial held, the jury found that Tuomey had submitted 21,730 false claims to Medicare, resulting in a judgment of $237,454,195.

On appeal Tuomey claimed that disputed legal questions — such as whether the contracts violated Stark — cannot meet the falsity element of the False Claims Act. In support, Tuomey cited United States ex rel. Wilson v. Kellogg Brown & Root, Inc., in which the Fourth Circuit had held that “[t]o satisfy [the falsity] element of an FCA claim, the statement or conduct alleged must represent an objective falsehood.” Tuomey argued that “imprecise statements or differences in interpretation growing out of a disputed legal question,” could not be considered objectively false.

The Fourth Circuit rejected Tuomey’s argument. While the Fourth Circuit did not reject its prior reasoning in Wilson, it distinguished Wilson on the grounds that the falsehood in Wilson —whether the defendant had fulfilled the terms of an imprecise contract — was a subjective inquiry, whereas the falsehood at issue in Tuomey — whether Tuomey had, as it certified it had, complied with Stark — was objective. The question of falsity in Tuomey represented an “either/or proposition”the defendant’s certifications of Stark Law compliance was either true or false. And, as the jury had found, Tuomey violated the Stark Law and therefore “Tuomey’s certification that it had complied with the Stark Law was false.”

The Tuomey Court’s decision on falsity is notable because it makes clear that disputes about interpretation of a statute is a question of scienter, not falsity. In previous decisions, such as United States ex rel. Lamers v. City of Green Bay, some courts interpreting the falsity requirement have conflated it with the scienter requirement. In Tuomey, however, the Court clearly differentiated between the two, stating that Tuomey’s awareness of whether the claims violated Stark “is covered under the knowledge element.”

For disputed legal questions, like whether the doctors’ contracts were permissible under Stark, the defendant’s uncertainty about legality did not bear on whether the arrangements actually violated the law or not, only on whether the defendant acted knowingly. A reasonable interpretation of a regulation may mean that a defendant did not know he violated the statute, but this does not change the fact that the statute was violated.
In demonstrating a greater willingness to separate falsity and scienter, the Fourth Circuit helped illuminate the comments in Wilson that the False Claims Act requires an “objective falsehood.” False Claims Act defendants have often attempted to capitalize on the commingling of the falsity and scienter elements by arguing that because they lacked knowledge of whether their actions violated the law, their claims could not be “objectively” false. By arguing ignorance, defendants hoped to foreclose further inquiry into falsity. The Fourth Circuit’s decision in Tuomey represents an unwillingness to accept defendants’ purported lack of knowledge that their actions violated the law means that their certifications of compliance with the law cannot be false.


·         United States ex rel. Drakeford v. Tuomey Healthcare Sys., Inc., No. 13-2219, 2015 WL 4036166 (4th Cir. July 2, 2015)

·         United States ex rel. Wilson v. Kellogg Brown & Root, Inc., 525 F.3d 370, 377 (4th Cir. 2008)

·         United States ex rel. Lamers v. City of Green Bay, 168 F.3d 1013, 1018 (7th Cir.1999)

Wednesday, May 20, 2015

Five banks plead guilty to Forex-manipulation charges and pay $2.5 billion

The guiding philosophy of a number of banks in the foreign currency exchange markets seems to have been, "If you ain’t cheating, you ain’t trying," as one Barclays executive wrote in a online chat.

At least five major banks – Citicorp, JPMorgan Chase, Barclays, The Royal Bank of Scotland and UBS – “tried” hard. The US Justice Department announced today that those banks have agreed to plead guilty to felony charges of conspiring to manipulate the foreign currency exchange market and pay a total of $2.5 billion in criminal fines.

Between 2007 and 2013, bank traders known as “The Cartel” used private chat rooms and coded language to manipulate US and euro exchange rates to increase their profits. The traders withheld bids and offers for the dollar and euro to manipulate the supply or demand for the currency, suppressing competition.

Barclays has agreed to an additional $60 million criminal penalty for violating a 2012 non-prosecution agreement that resolved the Department of Justice’s investigation into previous LIBOR and other interest rate manipulation. UBS has also agreed to a $203 million criminal penalty for violating the same non-prosecution agreement set by the DOJ.

All five banks have agreed to a three-year corporate probation where they will be required to report regularly to authorities and cease all other criminal activity.

It was an expensive day for Barclays. The bank also paid $400 million to settle charges brought by the Commodity Futures Trading Commission for attempted manipulation, false reporting and helping other banks manipulate global foreign exchange benchmark rates.