The U.S. Department of Justice recently announced that it had collected $2.2 billion in settlements and judgments from civil cases involving fraud and false claims against the government during the last fiscal year — with the bulk of the money recovered via False Claims Act qui tam cases.
As we have learned through our work in helping determine damages in such matters, False Claims Act qui tam cases can run the gamut from inflated billings and bribery to elaborate kickback schemes involving multiple parties. And the size of recoveries from such cases can run into the tens—and even hundreds—of millions of dollars.
Since 1986, in fact, when Congress strengthened the civil False Claims Act, overall recoveries in fraud cases have totaled more than $64 billion. During that period, the number of suits filed under qui tam (or whistleblower) provisions of the act has grown significantly as well. In the fiscal year ending Sept. 30, 2020, 672 qui tam suits were filed—an average of more than 13 new cases per week—and more than $1.6 billion of the $2.2 billion recovered was as a result of qui tam suits, according to Justice Department data.
The increase in cases has also meant a significant payout to the individuals who have exposed fraud and false claims by filing these actions. Should the government prevail in a qui tam action, the whistleblower, also known as the relator, typically receives between 15 and 30 percent of a recovery, according to Justice Department figures. During the last fiscal year, this translated to $309 million in government payouts to individuals who filed False Claims Act qui tam actions.
TOUGH MEDICINE
Much of the recent False Claims Act activity—more than $1.8 billion of recoveries in the 2020 fiscal year—involves matters related to the healthcare industry. This includes claims against drug and medical device manufacturers, managed care providers, hospitals, pharmacies, hospice organizations, laboratories, and physicians. The amount reflects only federal losses. According to the Justice Department, tens of millions of dollars more was recovered for state Medicaid programs as well.
More than a quarter of last fiscal year’s total recoveries came from a single case involving a drug company: Novartis Pharmaceuticals paid more than $591 million to resolve claims that it paid kickbacks to doctors to induce them to prescribe its drugs. Sales representatives, on orders of their managers, selected and paid high-volume prescribers to serve as speakers to induce other prescribers to write Novartis prescriptions, the government alleged.
In another case, Novartis and Gilead Sciences paid $148 million to resolve claims that they had illegally paid patient copays for their own drugs through purportedly independent foundations that were treated by the companies as conduits for payments. The foundations paid an additional $13 million to resolve their liability as well, the Department of Justice said.
Kickback schemes involving healthcare industry companies also resulted in major recoveries for the government. Among the major recoveries were: $37 million from ResMed Corp., a medical equipment maker, for kickbacks to suppliers and providers; $72 million from the Oklahoma Center for Orthopaedic and Multi-Specialty Surgery and others for improperly paying a physician group for patient referrals; and $41.6 from UTC Laboratories Inc. relating to kickbacks for lab referrals and for furnishing and billing for tests that were medically unnecessary. Three UTC principals also paid $1 million.
In addition, major recoveries came from matters where providers billed the government for medically unnecessary services or services not rendered as billed. Universal Health Services paid $117 million for knowingly submitting false claims for inpatient behavioral health services. And Logan Laboratories, Tampa Pain Relief Centers Inc., and two former executives agreed to pay more than $41 million for ordering urine drug tests without determining if they were medically necessary for patients.
The Justice Department also pursued fraud cases involving government contracts. For instance, Sterling Medical Associates, a Veterans Administration contractor, agreed to pay $1.85 million to settle a case involving allegations that it had failed to offer patients timely appointments and had falsified wait times at Minnesota outpatient clinics.
PROCUREMENT PAIN
Healthcare may have been a major focus for the DOJ in the 2019-20 fiscal year, but the department also pursued a series of fraud matters involving the federal government’s purchase of goods and services. Among the major recoveries the department reported were:
• $57.75 million paid by Bechtel National Inc., Bechtel Corp., AECOM Energy & Construction Inc., and their joint venture Waste Treatment Completion Co., LLC, to resolve allegations of inflated labor hours and billings at the Hanford Waste Treatment Plant in Washington state.
• $37 million paid by QuantaDyn Corp. to resolve civil and criminal liability for engaging in a bribery scheme to steer government contracts to the company for training simulators.
• $27 million paid by Unitrans International Inc. to resolve allegations that it had fraudulently induced the military to award wartime contracts for food and trucks by falsely certifying compliance with U.S. sanctions against Iran.
• $10 million paid by Hitachi Construction Machinery subsidiary Bradken Inc. over allegations that it had sold substandard steel components for installation on U.S. Navy submarines.
• $7.8 million to settle False Claims Act claims and more than $60 million in criminal fines paid by SK Engineering & Construction Co. Ltd. arising from a scheme to pay millions of dollars to a U.S. Army contracting official in exchange for a large construction contract in South Korea.
A WIDE VARIETY OF CLAIMS
As the Justice Department noted in a news release, “the number of variety of judgments and settlements announced during fiscal year 2020 reflect the diversity of fraud recoveries arising under the False Claims Act.”
For example, Hybrid Tech Holdings LLC, Hybrid Technology LLC and Ace Strength International Ltd. paid $29 million to resolve allegations that they colluded to rig bidding of an auction to purchase a non-performing loan from the U.S. Department of Energy. Three U.S. states agreed to pay $24 million to resolve allegations they violated the False Claims Act in their administration of the Supplemental Nutrition Assistance Program. Xavier University of Louisiana paid $12 million to resolve allegations that it had received excess disaster assistance funds in the wake of Hurricane Katrina. And the Scripps Research Institute agreed to pay $10 million to settle claims that federal research grant money was used for time spent by researchers on non-grant related activities.
A number of corporate settlements in the 2020 fiscal year also required individuals, particularly senior executives and owners, to pay a portion of settlements, including:
• a $4.25 million civil settlement with a surgeon alleged to have been involved in a kickback scheme for patient referrals.
• $3.25 million from six orthopedic surgeons to resolve allegations they received kickbacks in the form of fake consulting fees from a medical device maker and an associated company.
• a nearly $2 million payment from shareholders of an asphalt contractor for misrepresenting the materials used to pave federally funded roads in Indiana.
MORE RECOVERIES ON THE WAY
The current fiscal year, which will end on Sept. 30, 2021, promises to continue the trend of eye-popping settlements and judgments—particularly related to the government’s crackdown on opioid-related marketing and promotion.
On Oct. 21, Purdue Pharma agreed to an unsubordinated, general unsecured bankruptcy claim of $2.8 billion to resolve allegations the company had caused false claims to be submitted to federal healthcare programs as a result of its conduct in promoting and unlawfully inducing opioid prescriptions. (The settlement remains contingent on certain conditions in a Chapter 11 reorganization plan.) In a separate civil settlement, the Sackler family agreed to pay $225 million arising from their alleged conduct in marketing opioids toward high-volume prescribers.
The department also concluded a multi-year investigation of Indivior plc related to the marketing of the opioid addiction treatment drug Suboxone. The company agreed to pay $600 million to resolve civil allegations that it had promoted the drug to physicians who were writing prescriptions for uses that were unsafe, ineffective, and medically unnecessary. The government also accused Indivior of making misleading claims about the drug’s effectiveness.
As the number and size of federal fraud claims rise, attorneys involved in qui tam False Claims Act cases will be even harder pressed to accurately determine damages. Forensic Strategic Solutions has significant experience assisting in such matters. To learn more, contact us for a consultation.