FCA Now

The Department of Justice recently announced that a home-health services company has agreed to pay over $45,000 to resolve alleged False Claims Act (“FCA”) violations.  Professional Family Care Services, Inc. (“PFCS”), a North Carolina corporation, faced allegations of fraudulent billing for work by an employee that was convicted of wire fraud and sentenced to prison for her role in the alleged scheme. For two years starting in 2015, PFCS billed the Department of Veterans Affairs (the “VA”) for home-health services related to the medical care of an Army veteran identified by the initials W.R.  While PFCS was billing the VA for home-health services, W.R. was actually residing with a Certified Nursing Aide.  Relevant evidence indicated that PFCS was billing the VA based on falsified timesheets provided by the aide, for example, timesheets showing her providing services to W.R. and another patient simultaneously.  As a result, VA alleged that PFCS failed to provide W.R. with the time and quality of care required under the VA program. W.R. was eventually admitted to the hospital, where it was discovered that W.R. was extremely malnourished and died shortly after.  Following the death of W.R., PFCS submitted 15 separate claim forms seeking payment from the VA for the services provided by the aide totaling $11,273.92. Under 31 U.S.C. § 3729(a)(1), civil FCA claims may lead to treble damages in addition to other penalties for false or fraudulent claims.  As a result, PFCS agreed to pay $45,486.76 to settle the dispute and avoid litigation.  The aide was sentenced to twelve months and one day in federal prison for wire fraud related to the charging of home services for W.R. and ordered to pay over $90,000 in restitution. The primary takeaway here is that businesses that bill services to the government must closely review their invoices.  PFCS’s employee was double-charging the government for services, which could have been identified by internal review protocols.  Regardless of whether PFCS was aware of or condoned the actions, they were ultimately liable for monetary penalties.  Healthcare is one of the largest drivers of FCA liability, and this case serves to highlight the importance of internal controls when billing the government for healthcare services.

On January 14, 2021, the United States Department of Justice (“DOJ”) issued its annual press release highlighting its recoveries from False Claims Act (“FCA”) enforcement over the last fiscal year.  Total recoveries in FY2020 exceeded $2.2 billion, with the majority—$1.8 billion—of those recoveries coming from the healthcare industry.  These totals are down substantially from FY2019, in which total recoveries exceeded $3 billion with $2.6 billion relating to matters involving the health care industry. As was the case last year, recoveries from qui tam actions—lawsuits brought by whistleblowers or “relators” suing on behalf of the government—continued to fall, with only $1.6 billion in recoveries coming in qui tam actions following $2.2 billion in FY2019.  As we noted last year, this is unsurprising given former Attorney General Barr’s well-documented distaste for the qui tam provisions of the FCA, calling them “patently unconstitutional” in a memo he wrote as an Assistant Attorney General in 1989.  It also highlights the continuing effect of the “Granston Memo” on qui tam enforcement.  The Granston Memo, issued in 2018, instructed DOJ prosecutors to dismiss qui tam cases that lack substantial merit on the grounds that meritless qui tam cases drain limited government resources and may “generate adverse decisions that may affect the government’s ability to enforce the FCA.”  But the most likely factor for the lower recoveries in FY2020 is, of course, COVID-19, which has slowed judicial proceedings around the country and undoubtedly affected the progression of qui tam suits—an issue quickly identified by the DOJ in qualifying its reduced recoveries. The COVID-19 factor that led to a decrease in recoveries in FY2020, however, is likely to be responsible for what is expected to be a substantial increase in FCA recoveries and enforcement in 2021.  First, the government’s response to the pandemic by injecting trillions into the economy has created massive FCA exposure.  The risk of civil enforcement actions to combat fraud relative to the government’s expenditures are just starting to be seen now, with the recent announcement of the first civil FCA settlement based on a Paycheck Protection Program (“PPP”) loan.  Many more settlements and actions are likely to follow, given the congressional authorization of nearly $1 trillion of PPP funding since March 2020.  The rate of these enforcement actions is likely to increase, too, as the vaccine rollout continues and courts resume normal activities. Moreover, the government will be able to more effectively investigate and resolve FCA matters as the pandemic subsides, including addressing not only the new cases filed in 2021, but also, the still-pending 2020 matters.  Notably, although the total recoveries and total qui tam recoveries for FY2020 were down as compared to FY2019 ($2.2/1.6 billion compared to $3/2.2 billion), the total number of new FCA matters increased.  In FY2019, there were a total of 786 new FCA matters (148 non-qui tam and 638 qui tam).  This number increased by nearly 17% in FY2020, with 922 new FCA matters reported (250 non-qui tam and 672 qui tam).  Thus, as the government is able to better investigate these lingering 2020 matters in FY2021, the recoveries that may have otherwise been realized in FY2020 are now more likely to be realized in FY2021. Second, COVID-related expenditures—and the associated FCA exposure—are only expected to increase after President-Elect Biden proposed a $1.9 trillion relief plan on January 14, 2021.  Although a large percentage of that sum will go to individuals and the vaccine program, hundreds of billions are likely to go to businesses, opening the door for more fraud. Finally, the Biden administration may be more willing to pursue qui tam suits than the Trump administration, leading to an increased number of qui tam actions and a corresponding increase in overall recoveries.  President-Elect Biden stated plans to nominate Merrick Garland as Attorney General, who does not appear to have taken the same strong position against qui tam suits as seen with former Attorney General Barr. In short, while FY2020 was a down year for FCA recoveries, the number of total new FCA matters increased, and the conditions are ripe for a rise in FCA enforcement actions and recoveries throughout 2021.

Shortly before COVID-19 halted jury proceedings across the United States, a Mississippi jury sided with the Government to return a $10.8 million verdict against Stone County Hospital and several affiliates for what the jury found were false Medicare claims submitted in violation of the False Claims Act (“FCA”). United States ex rel. Aldridge v. Corporate Management, Inc., et al., Case No. 1:16cv369-HTW-LRA (S.D. Miss.). In May 2007, James Aldridge, the former Chief Operating Officer of Stone County Hospital, filed a qui tam action against the hospital and several defendants involved in its management and operation, including Ted Cain, Julie Cain, Tommy Kuluz, and Corporate Management, Inc. (the “Defendants”). The complaint alleged the Defendants submitted false records to secure payment under Medicare for services not actually performed and otherwise conspired to submit false claims in violation of the FCA. The Government investigated for nearly eight years before intervening in the lawsuit in 2015. The intervening complaint contained detailed allegations that the Defendants and others abused the special Medicare rules for Critical Access Hospitals from 2004 through 2015 by improperly claiming expenses for work not performed. Such false claims allegedly included the excessive and unwarranted compensation of Mr. Cain—who owned both Stone County Hospital and Corporate Management—as well as claims submitted for Mr. Cain’s personal luxury automobiles. The Government further alleged that Stone County Hospital’s Medicare cost reports misallocated expenses of Corporate Management to the hospital and contained inflated, unnecessary, and duplicative costs purportedly incurred by Corporate Management and related businesses owned by Mr. Cain. The Government alleged the Defendants submitted false records and statements to Medicare seeking reimbursement for these false and fraudulent expenses. After a nine-week trial, a Mississippi jury returned a $10.8 million guilty verdict against Ted Cain, Julie Cain, Stone County Hospital, Corporate Management, and Tommy Kuluz on March 12, 2020. The jury found the sixth defendant—Starann Lamier, the Chief Operating Officer of Corporate Management—not guilty. The 33-page verdict allocated the majority of the damages—$9.6 million—to Mr. Cain’s salary billed to Medicare through Stone County Hospital and Corporate Management. Under special reimbursement policies for critical access hospitals that service rural, underserved areas, Corporate Management passed on the vast majority of Mr. Cain’s multi-million dollar compensation to Stone County Hospital, which Medicare had reimbursed at 101% from 2004 to 2013 and 90% from 2013 to 2015. In addition, the jury awarded the Government over $850,000 in damages for fraudulent compensation paid to Julie Cain, who allegedly received compensation both for her work at Stone County Hospital and Corporate Management, although the jury found she rarely worked at the hospital and could not provide evidence of any consulting work performed for the hospital. The jury also awarded the Government over $380,000 for home office costs improperly submitted to Medicare. The Court scheduled oral argument on the imposition of penalties for March 26, 2020, but postponed the argument to May 6, 2020 due to the COVID-19 pandemic. In light of this delay—and the Government’s desire to quickly attach a judgment to the Defendants’ assets to secure future payment—the Government moved for immediate entry of judgment consistent with the jury’s verdict, seeking to apply the mandatory treble damages under the FCA to each Defendant, and recommended that the Court impose the minimum penalty permitted by law for the 12 claims at issue. On May 10, 2020, the Court entered judgment and calculated damages and penalties consistent with the jury verdict, the FCA, and the Government’s requested relief, applying the mandatory treble damages under FCA and the minimum penalty for each false claim found by the jury. Once trebled, the judgment held each Defendant jointly and severally liable for the amounts up to their respective liability, ranging from $27 to $32 million, as well as statutory penalties ranging from $66,000 to $71,000. The Court’s judgment also continued its prior order forbidding the Defendants from transferring, dissipating, selling or disposing of any of their assets. This case is noteworthy for several reasons. First, FCA cases rarely proceed to trial—or, at least, last the length of a trial to verdict. This case, however, resulted in a verdict after nine weeks. This case also exemplifies the criminal prosecution of individuals under the FCA. Although the Yates memorandum has placed an emphasis on individuals in FCA investigations and prosecutions since 2015, the majority of FCA prosecutions remain directed at corporate defendants. Next, this case demonstrates the significant duration of many FCA investigations. Although the relator originally filed his sealed complaint in 2007, the Government did not intervene until 2015. In the interim, Defendants were found to have continued submitting false claims for which they were ultimately held liable. Finally, this case is an important reminder about joint and several liability under the FCA and the significant and mandatory statutory penalties and damages in FCA cases. As exemplified by the verdict form in this case, juries are asked only to find the number and monetary amount of each false claim. Only after receiving the jury verdict does the court treble the amount of false claims to represent total damages and add statutory penalties based on the number of false claims. This two-step process emphasizes the risk of significant monetary liability under the FCA for both individual and corporate defendants, which, of course, is likely one reason most FCA cases resolve prior to jury verdict.

Less than a year after United States Attorney Christina E. Nolan warned electronic health records (“EHR”) companies in a DOJ press release that they “should consider themselves on notice” following a $57.25 million FCA settlement with EHR software developer Greenway Health LLC, the DOJ announced in a recent press release a $145 million settlement with another EHR vendor, Practice Fusion, Inc.  The settlement includes $26 million in criminal fines and forfeitures, which Practice Fusion agreed to pay as part of a deferred prosecution agreement.  That settlement figure is notable as the largest criminal fine in the District of Vermont’s history.  Practice Fusion agreed to pay another $118.6 million in civil settlement, which includes approximately $113.4 million to the federal government and up to $5.2 million to states that opt to participate in separate state agreements. Practice Fusion, founded in 2005, provided electronic medical record software called Practice Fusion Solution free of charge. Instead of making money through software sales and support, the company supported itself through drug advertising revenues. The government brought both civil and criminal claims against Practice Fusion.  Like the Greenway case, the government alleged Practice Fusion submitted false claims by certifying its EHR software products had specific capabilities when the software apparently did not.  The settlement also resolves claims that Practice Fusion violated anti-kickback laws through programs it ran with opioid and other drug manufacturers.  According to the criminal Information filed in the District of Vermont by U.S. Attorney Nolan—the same district that filed charges leading to the Greenway settlement—Practice Fusion created pain clinical decision support (“CDS”) alerts that were inconsistent with CDC Guidelines and clinical quality measures.  As alleged, these CDS alerts were intended to prompt physicians to prescribe—and therefore increase sales of—extended release opioids in exchange for remuneration from the opioid manufacturer.  The extended release opioid CDS alerts began in 2016, even as the opioid crisis was coming to a head and the CDC released guidelines identifying addiction and overdosing as concerns with opioid use. The settlement is noteworthy for several reasons.  It resolves the first ever criminal prosecution of an EHR company, according to the press release.  It also demonstrates the government’s willingness to combat the opioid crisis by targeting entities other than opioid drug manufacturers.  In addition, the settlement was the result of charges brought solely by the government without any qui tam relators, just like the case in the Greenway settlement, demonstrating the government’s willingness to investigate EHR companies on its own initiative.  Finally, the settlement clearly emphasizes U.S. Attorney Nolan’s prior admonition, “EHR companies should consider themselves on notice.”