The US Attorney’s Office for the Eastern District of Pennsylvania filed a Complaint in Intervention on June 4, 2019 (the Complaint) under the qui tam provisions of the False Claims Act (FCA) in two whistleblower cases brought against drug manufacturer Mallinckrodt. The Complaint alleges that Mallinckrodt violated the FCA when it used an independent copayment charity to subsidize the copays of Medicare patients for its drug H.P. Acthar Gel, while simultaneously promoting the drug as “free” to patients, including Federal health care beneficiaries, and also taking large price increases for the product.

The Complaint alleges that Mallinckrodt directed an independent copayment charity to operate financial assistance funds to provide copayment assistance for their product only, tracked the exact number of patients receiving and utilizing the copayment assistance, and excluded Federal health care beneficiaries from being able to take advantage of Mallinckrodt’s own free drug program.

This filing represents the latest enforcement action being pursued by the Department of Justice (DOJ) with respect to drug manufacturer’s use of co-pay charities, including the ongoing investigation being run by the U.S. Attorney’s Office for the District of Massachusetts, which has resulted in collection of $840 Million by the DOJ related to allegations of fraudulent behavior on the part of drug manufacturers with respect to financial patient assistance.

The cases are U.S. ex rel. Strunck et al. v. Mallinckrodt ARD LLC, case number 2:12-cv-00175, and U.S. ex rel. Clark v. Mallinckrodt ARD LLC, case number 2:13-cv-01776, both in the United States District Court for the Eastern District of Pennsylvania.

DOJ Cannot Rely on “Minimal” Investigation to End FCA Matter

Judge Staci Yandle of the United States District Court for the Southern District of Illinois ruled on June 7, 2019 that the DOJ could not voluntarily dismiss a pending FCA case without the court’s “determination of the existence of a valid governmental purpose and a rational relationship between dismissal and the accomplishment of that purpose.”

At issue is a pending FCA case brought by whistleblower National Healthcare Analysis Group against drug maker UCB Inc. and RxCrossroads. The government argued that the case should be dismissed in order to avoid “the expenditure of substantial resources on a case it believes to be without merit,” touting one of the factors for dismissal in the so-called “Granston Memo.” Support for this type of dismissal has been reiterated publicly by representatives of the DOJ as recently as January 28, 2019 at the 2019 Advanced Forum on False Claims and Qui Tam Enforcement. However, Judge Yandle, applying the holding of the Sequoia Orange case, stated that she would not “blindly accept the Government’s stated reasons for dismissal” and that further evidence gathered during an evidentiary hearing demonstrated that the Government’s “investigation into the claims specifically asserted in this case was minimal and it conducted no meaningful cost-benefit analysis” to support the dismissal. Judge Yandle denied the Government’s Motion to Alter Judgment and upheld her previous denial of the Government’s Motion to Dismiss.

The case is U.S. ex rel. Cimznhca, LLC v. UCB Inc., case number 3:17-cv-00765 in the United States District Court for the Southern District of Illinois.

Two Related Cases Demonstrate Criminal and Civil Risks for Claims Submitted for “Valueless” or Non-Delivered Services

Two related cases arising in Los Angeles, California serve as a reminder that the Government will and does actively pursue criminal and civil penalties against providers who submit claims for reimbursement for “valueless” or non-delivered services, in violation of the FCA.

After a seven-day trial, a Federal jury in Los Angeles found the physician owner of the Glazer Clinic and his patient recruiter guilty for their roles in a $33 million Medicare fraud scheme in which Medicare was billed for clinic, home health, hospice services, and durable medical equipment that patients either did not need or did not receive. The owner of the clinic and his patient recruiter/marketer are expected to be sentenced in September.

The defendants were charged in an indictment dating back to 2015, which also included charges against their co-conspirators ,the officer manager of Glazer Clinic and co-owner of Fifth Avenue Home Health located in Los Angeles (Fifth Avenue), and a second co-owner of Fifth Avenue.

The defendants pled guilty to charges that they conspired to recruit Medicare patients to the Glazer Clinic and bill for medically unnecessary services, then refer the patients back to Fifth Avenue for medically unnecessary home health services. On June 11, 2019, defendants’ co-conspirators were sentenced to 120 months and 78 months in prison, respectively, and both had various assets seized.

The DOJ press releases can be found here and here.

DOJ Settlement News

Florida Doc Settles Claims Stemming from Stark and Anti-Kickback Violations Involving Drug Testing Lab

Florida Doctor Nathan Hanflink agreed to repay the Government nearly $1 million to resolve allegations that he received improper payments for referrals he made to Pennsylvania drug testing lab Universal Oral Fluid Laboratories (UOFL) and caused false claims to be submitted to Medicare for those services. The Government alleged that the underlying arrangement between Hanflink and UOFL violated both the Stark Law and the Anti-Kickback Statute, thereby triggering FCA liability.

The DOJ press release can be found here.

Chicago PT Center and Nursing Homes Agree to Pay $9.7 Million to Resolve FCA Matter

A Chicago physical therapy center and four nursing facilities agreed to pay a combined $9.7 million to resolve allegations raised in a qui tam whistleblower suit that Quality Therapy & Consultation Inc. (Quality) and its owner worked in concert with four nursing facilities to provide, bill and receive payment for unnecessary services in violation of the FCA.

The nursing facilities worked with Quality to “upcode” resident care requirement scores, which in turn determined the ultimate amount Medicare paid to the facility. The lawsuit also alleged that therapy services were provided to residents who did not need the services or could not medically benefit from them, in order to submit claims to Medicare for reimbursement. In addition to the monetary settlement, Quality’s owner agreed to be excluded from participation in Federal health care programs for the next five years.

Individual settlement amounts are reflected as follows:

  •  Carlton at the Lake, located in the Buena Park neighborhood of Chicago: $3.63 million.
  • Lakeshore Healthcare, located in the Rogers Park neighborhood of Chicago: $2.73 million.
  • Balmoral Home, located in the Bowmanville neighborhood of Chicago: $1.17 million.
  • Quality Therapy and Consultation, formerly located in suburban Orland Park: $1.09 million.
  • Ridgeview Rehab, located in the Rogers Park neighborhood of Chicago: $1 million.
  • Frances Parise: $160,000.

The DOJ press released can be found here.