The qui tam provisions of the False Claims Act (FCA) allow private citizens to file lawsuits on behalf of the U.S. government if an individual or a company is defrauding the government. If the government is able to make recoveries from an FCA case, the whistleblower in the case can receive a portion of the recovery.
The False Claims Act has one of the strongest whistleblower reward laws in the U.S. Under the FCA’s whistleblower reward provision, whistleblowers “are entitled to a minimum payment of 15% and a maximum payment of 30% of the proceeds collected by the government,” according to whistleblower law firm Kohn, Kohn and Colapinto (KKC). Additionally, there are no caps on the size of whistleblower awards, meaning that a whistleblower is entitled to any amount of money as a reward based off of the amount of money the government recovers in an enforcement action. “The larger the sanction, the larger the award,” KKC’s website states. This reward system incentivizes FCA whistleblowers to come forward and report corruption with the best evidence possible.
In the 2020 fiscal year, which ended on September 30, 2020, the Department of Justice (DOJ) “obtained more than $2.2 billion in settlements and judgements from civil cases involving fraud and false claims against the government,” the DOJ website reports. This article recaps the qui tam decisions and lawsuits that the DOJ announced this month so far.
Professional Compounding Centers of America Inc.
On November 8, the DOJ made two announcements relating to qui tam cases and the False Claims Act. One press release announced that the Justice Department is filing a complaint under the False Claims Act against Houston-based company Professional Compounding Centers of America Inc. (PCCA). PCCA “sells active pharmaceutical ingredients and other products and services to compounding pharmacies.” The DOJ alleges that the company “reported fraudulent and inflated Average Wholesale Prices (AWPs) for its ingredients that bore no relationship to the actual prices at which it sold those ingredients to its pharmacy customers.” This alleged activity led the pharmacies “to submit inflated compound prescription claims to TRICARE,” which is the federal “health care program for uniformed service members, retirees, and their families around the world,” according to the program’s website.
The lawsuit against PCCA was originally brought under the FCA’s qui tam provisions by whistleblower Peter Hueseman. “Hueseman was formerly a part owner and pharmacist at a pharmacy that purchased compound ingredients from PCCA,” the press release states. The qui tam case is titled United States ex rel. Hueseman v. Professional Compounding Centers of America, Inc., No. 5:14-cv-212 (W.D. Tex.). A November 2019 press release reports on settlements with Freedom Pharmaceuticals, Inc. and Pharmacy Services Inc., “which were also defendants in this matter.” The 2019 press release notes that the qui tam whistleblowers in that case received “a combined total of $3,749,000 plus accrued interest from the proceeds of the settlement.”
The DOJ explains that “[c]ompounding pharmacies purchase ingredients for use in compound drugs from ingredient suppliers such as PCCA.” Suppliers like PCCA then “establish and report AWPs for their ingredients to pricing compendia used by federal health care programs and commercial health insurance companies.” TRICARE partially uses the reported AWP for “each of the ingredients in a compound drug” to calculate the “level of reimbursement for compound prescription claims.”
Thus, the complaint alleges that “PCCA knowingly established and reported AWPs for its ingredients that were greatly inflated above their actual selling prices.” As an example, the company allegedly sold its “top customers” the chemical Fluticasone Propionate “for between approximately $135 and $197 per gram in 2014, but it reported an AWP for that ingredient of $3,630.90 per gram — approximately 18 to 27 times the actual selling price.” The DOJ states that in the same year, PCCA “typically sold the ingredient Resveratrol to its top customers for under $2 per gram but reported an AWP of $818.68 per gram,” again a huge increase from the ingredient’s real selling price.
PCCA’s alleged behavior “caused its pharmacy customers to submit tens of thousands of false and fraudulently inflated compound prescription claims containing PCCA ingredients to TRICARE, costing the program hundreds of millions of dollars in excess reimbursement,” the DOJ states. Additionally, the complaint alleges that “PCCA offered additional inducements to pharmacy customers, such as annual all-inclusive travel packages, in exchange for ingredient purchases and purchase commitments.”
The press release states that the case is being handled by attorneys from the DOJ’s Fraud Section. It also emphasizes the FCA’s important role in combating fraud.
Arthrex Inc.
On November 8, the DOJ also announced a settlement with Florida-based medical products company Arthrex Inc. The company agreed to pay $16 million to settle allegations “that it violated the FCA by paying kickbacks that caused the submission of false claims to the Medicare program.”
The DOJ reports that Arthrex, a company that “specializes in orthopedic products,” allegedly paid “kickbacks to a Colorado-based orthopedic surgeon.” According to the settlement, Arthrex is resolving allegations that it “agreed to provide renumeration to the surgeon in the form of royalty payments purportedly for the surgeon’s contributions to Arthrex’s SutureBridge and SpeedBridge products when the renumeration was in fact intended to induce the surgeon’s use and recommendation of Arthrex’s products.” The DOJ states that this alleged behavior constituted as an Anti-Kickback Statute violation as well as an FCA violation because the alleged actions led to “the submission of false or fraudulent Medicare claims.”
As part of the settlement, Arthrex “entered into a five-year corporate integrity agreement with HHS-OIG.” The agreement also establishes requirements for “future compliance.”
This settlement resolves a qui tam case brought by Joseph Shea, who will receive a whistleblower award of $2.5 million from the FCA settlement.
Medical kickback schemes often erode accountability in the medical industry and system, especially when these schemes take advantage of federal medical programs. Additionally, kickback schemes that defraud federal medical programs also shortchange the recipients of said programs, further breaking down patient trust in the system and negatively affecting public opinion of federal medical programs. Thus, the FCA is an important and effective tool in detecting and combating this type of medical fraud.
kaléo Inc.
On November 9, the DOJ published a press release announcing that Virginia-based pharmaceutical manufacturer kaléo Inc. agreed to pay $12.7 million to resolve allegations that it “caused the submission of false claims for the drug Evzio.” Evzio is “an injectable form of naloxone hydrochloride indicated for use to reverse opioid overdose.” According to the DOJ, “Evzio was the highest-priced version of naxalone on the market, and insurers frequently required the submission of prior authorization requests before they would approve coverage for Evzio.”
The DOJ’s lawsuit alleged that between March 14, 2017 and April 30, 2020, kaléo “directed prescribing doctors to send Evzio prescriptions to certain preferred pharmacies.” These pharmacies would then submit “false prior authorization requests” for the drug that misrepresented who sent the request and/or “contained false or misleading assertions about the patients’ medical histories, such as false statements that patients had previously tried and failed less costly alternatives to Evzio.” The DOJ also alleged that these preferred pharmacies would dispense Evzio “without collecting or attempting to collect co-payment obligations from government beneficiaries.”
Additionally, the DOJ alleged that kaléo “knew of or deliberately ignored” the pharmacies’ misconduct and “provided illegal remuneration to prescribing physicians and their office staff,” resulting in violating the Anti-Kickback Statute.
kaléo’s civil settlement includes a resolution of claims brought by whistleblower Rebecca Socol, who formerly worked for kaléo. For her role in bringing light to kaléo’s alleged actions, Socol will receive $2,548,600. Like the Arthrex settlement, this case displays how misconduct in the medical and healthcare industries harm federal programs but also highlights the importance of the whistleblower’s help in bringing attention to the case.
Roman Catholic Archdiocese of New Orleans
The case the DOJ published a press release about on November 15 concerns the 2005 Hurricane Katrina tragedy. According to the DOJ, the Roman Catholic Archdiocese of New Orleans (Archdiocese of New Orleans) agreed to pay over $1 million “to resolve allegations that it violated the False Claims Act by knowingly submitting false claims for payment to the Federal Emergency Management Agency (FEMA) for the repair or replacement of certain facilities” that experienced damage from the hurricane.
The DOJ alleged that from 2007 through 2013, the Archdiocese of New Orleans “knowingly signed certifications for FEMA funding that contained false or fraudulent damage descriptions and repair estimates that were prepared by AECOM, an architecture and engineering firm.” One example of one of these alleged false claims was “purported damage to a nonexistent central air conditioning unit.”
This settlement resolves allegations that were originally brought by a whistleblower under the FCA’s qui tam provisions. Robert Romero, an AECOM Project Specialist, filed the lawsuit and will receive $199,500 for the settlement with the Archdiocese of New Orleans.
In the press release, several individuals mentioned FEMA’s goal to help victims of disaster and the effect of defrauding the program. “Federal disaster funds are an instrumental component in the effort to assist disaster victims with their recovery,” said the U.S. Attorney’s Office for the Eastern District of Louisiana. “The favorable resolution of this False Claims Act matter illustrates the collaborative efforts and firm commitment by our federal partners to use all available remedies to address signs of fraud, waste and abuse.”
“Funds fraudulently obtained from FEMA deprive deserving recipients and communities truly in need,” added Inspector General Dr. Joseph V. Cuffari for Department of Homeland Security Office of Inspector General (DHS OIG).
