On June 25, the U.S. Court of Appeals for the Eighth Circuit affirmed the dismissal with prejudice of a qui tam False Claims Act (FCA) suit alleging certain physician compensation arrangements at Trinity Health violated the Anti-Kickback Statute (AKS) and Stark Law.

The relator, a former surgeon at one of Trinity’s hospitals, alleged the following:

  1. That Trinity paid five of its highest-earning physicians above fair market value by compensating them in excess of 90th percentile compensation for their specialties at levels not justified by their personal productivity.
  2. The high compensation generated practice losses for Trinity absent taking into account the physicians’ downstream referrals to the health system.
  3. As a result of the physicians’ compensation methodology, they performed unnecessary surgeries to inflate their compensation.
  4. Trinity opted not to renew his contract because he complained about these allegedly-unnecessary surgeries.


Continue Reading Eighth Circuit Affirms Dismissal of Kickback Case

This is the second post of a two-part discussion of recent developments related to the materiality standard set forth by the Supreme Court in Universal Health Services v. U.S. ex rel. Escobar.  Read our previous post, which covered appellate court decisions and key decisions related to government knowledge and payment.

Courts Take Differing Approaches to the Significance of Government Intervention Decisions

In assessing the False Claims Act’s (FCA) materiality element, courts have increasingly taken divergent approaches to analyze the significance of the government’s decision about whether to intervene in a qui tam action.

In several 2019 decisions, district courts held that the government’s decision to intervene in a qui tam action was relevant – even if not dispositive – to the materiality analysis under Escobar.  In U.S. ex rel. Longo v. Wheeling Hospital, Inc., for instance, the U.S. District Court for the Northern District of West Virginia found that the government’s decision to intervene in the very qui tam action before it “strongly militate[d] in favor of materiality.”  And in U.S. ex rel. Arnstein v. Teva Pharmaceuticals USA, Inc., the U.S. District Court for the Southern District of New York explained that the government’s decision to intervene in “a factually similar case” in the same district “provide[d] strong evidence that AKS [Anti-Kickback Statute] violations were material to the Government’s payment decisions,” even though the government had not intervened in the case before the court.


Continue Reading Escobar’s “Rigorous” Materiality Standard: Recent Developments – Part Two

This is the first post of a two-part discussion of recent developments related to the materiality standard set forth by the Supreme Court in Universal Health Services, Inc. v. U.S. ex rel. Escobar.  Our second post covers government intervention decisions, the “essence of the bargain” test, and the materiality of Anti-Kickback Statute violations.

The Supreme Court’s 2016 decision in Universal Health Services, Inc. v. U.S. ex rel. Escobar continues to play a significant role in FCA litigation, particularly with respect to courts’ analyses of the FCA’s materiality element.  In Escobar, the Supreme Court described the materiality element as “rigorous” and “demanding” and set forth a number of non-exclusive considerations to guide the materiality inquiry, which primarily focus on the government’s actual conduct and its payment (or non-payment) of purportedly false claims.  In 2019, courts continued to grapple with specific applications of Escobar’s directives, with some courts appearing to apply its materiality guidance less “rigorously” than others.

Some Appellate Courts Appear to Apply Escobar Less Rigorously Than Others

As we have previously discussed, the seemingly irreconcilable decisions issued by the nation’s circuit courts about how Escobar’s non-exclusive factors should apply in particular cases led parties in at least three such cases to seek further clarity from the Supreme Court.  But last year the Supreme Court denied review in each of those three cases, perhaps signaling that – at least for now – it is content to allow the various issues raised in Escobar to continue to percolate in the lower courts.


Continue Reading Escobar’s “Rigorous” Materiality Standard: Recent Developments – Part One

Congress amended the Anti-Kickback Statute (AKS) in 2010 to confirm that a claim “resulting from” an AKS violation constitutes a false or fraudulent claim for purposes of the FCA.  42 U.S.C. 1320a-7b(g).  However, Congress did not define the phrase “resulting from.”  That question is immaterial in a criminal AKS case because the offer or receipt of the payment completes the crime.  But in order to prevail in a civil FCA case, a relator or the government must prove the submission of a false claim to a federal healthcare program.  In recent civil FCA cases, courts have struggled to articulate the precise link that is required in order to establish that a claim “result[s] from” an illegal kickback, often relying on traditional causal concepts to help articulate the required link.  This developing area of the law is one to watch as courts continue to grapple with the interplay between the link required by the plain language of the AKS and the body of case law related to FCA causation.

U.S. ex rel. Greenfield v. Medco Health Sys., Inc.

In U.S. ex rel. Greenfield v. Medco Health Sys., Inc., the relator alleged that the defendants illegally donated to certain charities in order to receive patient referrals and then allegedly falsely certified compliance with the AKS when seeking reimbursement.  The U.S. District Court for the District of New Jersey granted summary judgment for the defendants, reasoning that the relator had not shown a causal link between the defendants’ donations and any claims for payment.  Although discovery revealed that the defendants submitted claims for 24 federally insured patients during the relevant time period, the district court concluded that this evidence alone did not provide “the link between defendants’ 24 federally insured customers and defendants’ donations to [the charities].”  Instead, it explained that the relator was required to show that the federally insured patients were referred to the defendants as a result of the defendants’ donations to the charities.  “Absent some evidence … that those patients chose Accredo because of its donations,” the relator could not carry his burden on his claim.


Continue Reading Courts Grapple with Causation Requirement in FCA Cases Based on Violations of Anti-Kickback Statute

Bass, Berry & Sims is pleased to announce the release of the 2019 edition of its Healthcare Fraud & Abuse Annual Review. Compiled by the firm’s Healthcare Fraud Task Force​​​​​​​, the Review is an in-depth and comprehensive analysis of enforcement settlements, court decisions, and recent developments affecting the healthcare industry.

The Review details

The Department of Justice (DOJ) announced this month that it obtained over $3 billion in settlements and judgments from civil fraud and false claims cases during the fiscal year ending September 30, 2019 (FY 2019). Of this total recovery, the vast majority—$2.6 billion—arose from matters related to different sectors of the healthcare industry. DOJ noted that 2019 was the tenth consecutive year that recoveries from civil healthcare fraud cases have exceeded $2 billion, indicating that the government’s enforcement efforts remain focused on allegations of fraud in the healthcare sector.

Large Recoveries Related to Drug Manufacturers & EHR

Within the healthcare industry, the government reported significant recoveries against pharmaceutical manufacturers. Insys Therapeutics paid $195 million to resolve civil False Claims Act (FCA) allegations that it paid kickbacks to induce healthcare providers to inappropriately prescribe its fentanyl product, Subsys, to their patients. This civil settlement was part of a larger global resolution of civil and criminal allegations, with Insys agreeing to pay a total of $225 million. Reckitt Benckiser Group agreed to pay $1.4 billion to resolve criminal and civil allegations related to the marketing of the addition treatment drug Suboxone, a buprenorphine product. The global resolution included a $500 million civil settlement with the federal government.


Continue Reading DOJ Announces 2019 FCA Recovery, Majority Came from Healthcare Industry

In two prior posts [Government Files Amended FCA Complaint Against Private Equity Firm and its Portfolio Company and DOJ Intervention in Healthcare Fraud Case Highlights Potential Risks for Private Equity Firms], we wrote about the Department of Justice’s (DOJ) decision to intervene in a False Claims Act (FCA) case against a compounding pharmacy and its private equity backer.

The case, Medrano v. Diabetic Care Rx, LLC, was the first time we had seen the DOJ name a private equity firm in a FCA case involving allegations of wrongdoing by one of its portfolio companies, and we noted that this should be a wake-up call to private equity firms who are actively engaged in the management and control of healthcare companies in which they invest.

The alarm rang once again in September 2019, as the DOJ announced that it reached a $21.36 million settlement with Patient Care America (PCA), the compounding pharmacy at issue in the case, two of the company’s executives and, most notably, the private equity firm Riordan, Lewis & Haden Inc. (RLH) that managed PCA on behalf of its investors.  The settlement was reached on ability to pay grounds.


Continue Reading Private Equity Firm Settles FCA Case

We wrote an article examining recent enforcement actions by the government within the long-term care industry for McKnight’s Long-Term Care News. In the article, we point out that “recent cases reinforce the notion that long-term care providers should pay particular attention to the government’s efforts to police arrangements and business practices that implicate the

On March 18, 2019, the Department of Justice (DOJ) filed an amended complaint-in-intervention in the False Claims Act (FCA) case against Diabetic Care Rx, LLC d/b/a Patient Care America (PCA); two of PCA’s executives; and the company’s private equity owner, Riordan, Lewis & Haden, Inc. (RLH).  This filing comes on the heels of a March 5 decision by the U.S. District Court for the Southern District of Florida that dismissed for insufficient pleading DOJ’s FCA claim that the defendants submitted or caused the submission of false claims to TRICARE for compound prescriptions obtained through the payment of unlawful kickbacks to marketers, physicians and patients.  This case is significant and has been closely watched by the industry because it represents the first time DOJ has intervened in an FCA suit against a private equity firm alongside a healthcare portfolio company accused of submitting false claims.

Government Accused Private Equity Owner of Being Involved in Kickback Activity

This matter involves allegations that PCA paid kickbacks to marketers to target TRICARE beneficiaries for compound pain creams, scar creams and vitamins, regardless of medical necessity.  The marketers allegedly paid telemedicine physicians who prescribed the products without ever physically examining the patients, and colluded with PCA to pay many patients’ copayments to induce their acceptance of the lucrative compound drugs.  As support for its claim against RLH, as the private equity firm, the government has repeatedly cited to evidence purporting to show RLH’s material day-to-day involvement in the operations of PCA and its awareness of the facts surrounding the alleged kickback conduct.  The government has alleged that at all relevant times, RLH managed and controlled PCA through two RLH partners who also served as officers and/or directors of PCA and of two holding companies with an interest in PCA.


Continue Reading Government Files Amended FCA Complaint Against Private Equity Firm and its Portfolio Company

Download Annual Healthcare Fraud & Abuse ReviewBass, Berry & Sims is pleased to announce the release of its seventh annual Healthcare Fraud and Abuse Review. The Review, compiled by the firm’s Healthcare Fraud Task Force, is an in-depth and comprehensive review of enforcement settlements, court decisions and developments affecting the healthcare industry.

The Review is intended to assist healthcare