At the end of May, the U.S. Department of Justice (DOJ) made two announcements regarding qui tam whistleblower cases. The qui tam provisions of the False Claims Act enable private citizens to file lawsuits on behalf of the government if they know of an individual or company defrauding the government. Qui tam whistleblowers are eligible to receive between 15 and 30% of the government’s recovery, if one occurs.
Virginia-based technical textile and materials manufacturer HEYtex USA will pay $3 million to settle allegations that it violated the False Claims Act. The civil settlement resolves claims brought by a whistleblower under the Act’s qui tam provisions.
According to the May 25 press release, “HEYtex USA is a worldwide manufacturer of various technical textiles and materials, and its North American headquarters in Southwest Virginia specializes in fabrics and materials produced for the United States military.”
The U.S. alleged that between January 1, 2013, and December 31, 2018, HEYtex “knowingly sold fabrics to the United States military that failed to meet certain required specifications.” The whistleblower in this case was an employee of HEYtex USA; they “brought information regarding falsified test results to the attention of former company management,” the press release states. However, the whistleblower “was initially ignored.”
The whistleblower “alleged that on over 100 separate occasions, HEYtex falsely certified that its military-grade fabrics met all requisite performance specifications set by the military when, in fact, the fabrics failed those tests.”
In addition to paying $3 million in the settlement, HEYtex “also entered into an agreement with the Defense Logistics Agency (DLA) to ensure that HEYtex remains in compliance with testing requirements going forward.”
U.S. Attorney Chris Kavanaugh expressed gratitude towards whistleblowers, stating in the press release: “We applaud the courageous efforts of whistleblowers, who put their livelihood on the line to do what is right.” He continued, “Whistleblowers are essential to combatting fraud against the government and we aggressively investigate all such allegations…We commend our citizen partners and encourage all who know, or have reason to know, of fraud against the government to come forward and report it.”
Laboratory Testing Fraud
On May 26, the DOJ announced that it added six Texas physicians to a complaint alleging that they violated the False Claims Act. “The amended complaint further alleges that the six physicians caused claims to be improperly billed to federal health care programs for medically unnecessary laboratory testing,” the press release states. The most recent complaint was filed in connection to a qui tam lawsuit; STF LLC, consisting of Felice Gersh, M.D. and Chris Riedel, filed the qui tam complaint.
The government alleges that the six physicians “received thousands of dollars in kickbacks in return for their referrals of laboratory testing.” The complaint alleges that True Health Diagnostics LLC (THD) and Boston Heart Diagnostics Corporation (BHD), both laboratories, “conspired with small Texas hospitals…to pay physicians to induce referrals to the hospitals for laboratory testing, which was then performed by THD or BHD.”
According to the complaint, the U.S. alleged that “the hospitals paid a portion of their laboratory profits to recruiters, who in turn kicked back those funds to the referring physicians. The recruiters allegedly set up companies known as management service organizations (MSOs) to make payments to referring physicians that were disguised as investment returns but were actually based on, and offered in exchange for, the physicians’ referrals.” Additionally, “[t]he complaint “alleges that laboratory tests resulting from this referral scheme were billed to various federal health care programs, and that the claims not only were tainted by improper inducements but, in many cases, also involved tests that were not reasonable and necessary.”
The government’s amended complaint named each of the physicians and the amount of money each individual allegedly gained from the laboratory testing referrals.
According to the press release, the U.S. “intervened in the qui tam action in December 2021 and filed a complaint under the False Claims Act in January 2022” against former CEOs of the laboratories and at least one of the hospitals. Thus far, the U.S. “has already recovered more than $31 million relating to conduct involving BHD, THD and LRH, including False Claims Act settlements with 29 physicians, two health care executives and a laboratory company.”
U.S. Attorney Brit Featherston for the Eastern District of Texas emphasized the physicians’ participation in the scheme, stating that “[s]chemes that funnel health care referrals do not work without the participation of physicians…They are not merely passive players in these elaborate schemes, but an integral part, without which the scheme could not exist.”
Principal Deputy Assistant Attorney General Brian M. Boynton, head of the DOJ’s Civil Division, highlighted how kickback schemes undermine the health system: “Improper financial arrangements involving physicians and laboratories can distort physicians’ medical judgments, waste taxpayer dollars and subject patients to unnecessary testing or other services.”
The False Claims Act in 2021
Whistleblowers are key to uncovering fraud and corruption in the healthcare industry: fraudulent schemes can be particularly harmful to patients and erode trust in the medical system. In Fiscal Year 2021, whistleblowers helped the DOJ recover $1.6 billion in settlements. The DOJ highlighted health care fraud as “the leading source of the department’s False Claims Act settlements and judgments.”
The DOJ reported that whistleblowers helped the DOJ recover $1.6 billion in settlements during the past fiscal year. Read the full article about the False Claims Act in FY 2021 here.