Two recent settlements emphasize the high cost of Medicare/Medicaid fraud allegations and the incentive for healthcare industry whistleblowers to come forward. These types of lawsuits continue to increase, resulting in large settlements that benefit individual whistleblowers and federal and state governments.

In one case, pharmaceutical manufacturer Mallinckrodt settled a False Claims Act (FCA) lawsuit for $3.5 million in the Northern District of California. The Department of Justice alleged that the company improperly paid kickbacks in the form of consulting fees to “shady doctors” who were willing to prescribe high volumes of certain medications for insomnia, pain, and depression, and who submitted false Medicare and Medicaid claims. A whistleblowing former employee claimed that he first learned of the allegedly illegal program in a sales meeting. As a result of his whistleblowing efforts, he will receive $603,000 from the settlement. The remainder will be allocated to the federal government and eight states to fund Medicare and Medicaid programs.

In a second recent matter, Park Avenue Medical Associates, a practice with more than 120 facilities in three states, settled a FCA lawsuit with the U.S. Attorney’s Office for $1 million in the Southern District of New York. In a consent judgment, the medical practice acknowledged that it billed Medicare for psychotherapy services provided to nursing home and assisted living residents without proving they “had the capacity” to benefit from the treatment. The practice also admitted to charging Medicare for psychiatric diagnostic examinations without adequate documentation. A former employee of the practice’s billing and collections department brought the lawsuit, and he will likely receive 15-25% of the settlement amount.

These settlements follow the heightened whistleblowing incentives trend we have been reporting over the past few months. Legislation has been proposed in Congress, the Preventing and Reducing Improper Medicare and Medicaid Expenditures Act of 2013 (the PRIME Act) (H.R. 2305, S. 1123), which would create stronger penalties for Medicare and Medicaid fraud. In addition, the Department of Health and Human Services recently proposed a rule that would raise the ceiling for whistleblower payouts to nearly $10 million.  The Corporate Whistle Blower Center has also unveiled a website dedicated to encouraging healthcare industry whistleblowers to come forward. With these developments on the horizon, healthcare employers should expect to see even more whistleblowing lawsuits and larger settlements.