Why it matters: Since our last newsletter, the DOJ announced numerous False Claims Act resolutions, especially in the healthcare field. The largest by far of these involved a “major U.S. hospital chain” and allegations of fraud on the government, and criminal violations of the Anti-Kickback Statute. Read on for a review of this and other government resolutions of note from the past month, as well as a discussion of recent court activity—one involving the filing of a complaint by the SEC and the other an Eighth Circuit decision—that touched upon interesting issues in the False Claims Act arena.

Detailed discussion: Below, we discuss significant government resolutions and court activity involving the False Claims Act (FCA) and related statutes that were announced in the weeks since our last newsletter.

Healthcare resolutions of note

The most significant resolution in the past month was announced by the DOJ on October 3, 2016. There, the DOJ said that Tenet Healthcare Corporation (Tenet), described as a “major U.S. hospital chain,” and two of its indirect Atlanta-based subsidiaries, Atlanta Medical Center Inc. (AMC) and North Fulton Medical Center Inc. (NFMC), agreed to pay approximately $513 million to resolve criminal charges and civil claims, respectively, that they (1) violated the federal Anti-Kickback Statute (AKS) by making illegal payments to doctors in exchange for patient referrals, and (2) defrauded the government when they submitted claims to government healthcare programs for reimbursement of the cost of medical services provided to the illegally referred patients.

According to the allegations in the criminal information and civil FCA litigation filed in the case, AMC, NFMC (which up until April 2016 operated acute-care hospitals in and around Atlanta) and two other Tenet facilities they operated paid bribes and kickbacks to prenatal care clinics that primarily served undocumented Hispanic women in return for the referral of those women for labor and delivery medical services at Tenet hospitals. The government alleged that these bribes and kickbacks resulted in Tenet being reimbursed over $145 million under federal and state Medicaid and Medicare programs based on the illegal patient referrals.

In the criminal information, the DOJ alleged that, in some cases, expectant mothers were told at the prenatal care clinics that Medicaid would cover the costs associated with childbirth and newborn services only if they delivered at one of the Tenet hospitals. In other cases, the expectant mothers were allegedly told that they were required to deliver at one of the Tenet hospitals. The DOJ also charged AMC and NFMC with conspiring to defraud the U.S. Department of Health and Human Services (HHS) in its administration and oversight of Medicare and Medicaid healthcare programs, as well as in its enforcement of Tenet’s September 2006 corporate integrity agreement with HHS’s Office of Inspector General (OIG), which was in effect when many of the unlawful kickbacks were paid. The DOJ further alleged that AMC and NFMC executives criminally concealed the unlawful payments from HHS-OIG while the corporate integrity agreement was still in effect by, among other things, “falsely certifying compliance with the requirements of the [corporate integrity agreement] and failing to disclose reportable events relating to the unlawful relationship under the [corporate integrity agreement].”

As part of the criminal resolution, the DOJ said that AMC and NFMC agreed to plead guilty to conspiracy to defraud the United States “by obstructing the lawful government functions of the HHS” and violating the AKS (the plea agreement is subject to court approval). Under the plea agreement, the DOJ said that AMC and NFMC will forfeit the $145 million it received from federal and state healthcare programs in connection with the illegal referrals. In addition, the DOJ said that Tenet, AMC, NFMC and their parent company, Tenet subsidiary Tenet HealthSystem Medical Inc. (THSM), agreed to enter into a three-year nonprosecution agreement (NPA) with the DOJ Criminal Division’s Fraud Section and the U.S. Attorney’s Office for the Northern District of Georgia pursuant to which they will avoid prosecution if, among other requirements, they “cooperate with the DOJ’s ongoing investigation and enhance their compliance and ethics program and internal controls.” The DOJ said that Tenet further agreed in the NPA to “retain an independent compliance monitor to address and reduce the risk of any recurrence of violations of the AKS by any entity owned in whole, or in part, by Tenet.”

As part of the civil settlement, the DOJ said that Tenet agreed to pay approximately $368 million (comprised of approximately $244.3 million to the federal government, $123 million to the state of Georgia and $900,000 to the state of South Carolina) to resolve a qui tam lawsuit brought under the federal and Georgia state FCA statutes, for which the whistleblower will receive a significant award of approximately $84.4 million.

In a statement, Principal Deputy Assistant Attorney General David Bitkower said that “[w]hen pregnant women seek medical advice, they deserve to receive care untainted by bribes and illegal kickbacks … The Tenet case is the first brought through the assistance of the Criminal Division’s corporate health care fraud strike force. This is one of more than a dozen active corporate investigations by the strike force, and we are committed to following evidence of health care fraud wherever it leads—whether it be individual physicians, pharmacy owners or corporate boardrooms.”

The following are other recent healthcare resolutions/actions involving medically unnecessary services, Stark Law violations and cold calling:

  • September 28, 2016—The DOJ announced that Pennsylvania-based Vibra Healthcare LLC (Vibra) agreed to pay $32.7 million to resolve civil claims that it violated the FCA by billing Medicare for medically unnecessary services: The DOJ alleged that between 2006 and 2016 Vibra—which operates approximately 36 freestanding long-term care hospitals (LTCHs) and inpatient rehabilitation facilities (IRFs) in 18 states—admitted numerous patients to five of its LTCHs and to one of its IRFs who did not “demonstrate signs or symptoms that would qualify them for admission.” In addition, the DOJ alleged that Vibra “extended the stays of its LTCH patients without regard to medical necessity, qualification and/or quality of care” and that, in some instances, ignored the recommendations of its own clinicians who had deemed the patients ready for discharge. As part of the settlement (in which Vibra neither admitted nor denied the allegations), Vibra agreed to enter into a chainwide corporate integrity agreement with HHS-OIG. The qui tam whistleblower in the case will receive a $4 million award.
  • September 27, 2016—The DOJ announced that the former CEO of Tuomey Healthcare System agreed to pay $1 million to settle Stark Law violations: The DOJ said that it reached the $1 million settlement with Ralph J. Cox III, the former CEO of South Carolina-based Tuomey Healthcare System (Tuomey) for his involvement in the hospital’s illegal Medicare and Medicaid billings for services referred by physicians with whom the hospital had improper financial relationships in violation of the Stark Law. The illegal physician arrangements had resulted in a $237.4 million judgment against Tuomey following a month-long jury trial in May 2013. The verdict was upheld by the Fourth Circuit in July 2015, which we covered in our August 2015 newsletter under “Tuomey Healthcare $237 Million Verdict Upheld: Advice of Counsel Means ALL Counsel.” According to the press release, the DOJ had settled the verdict with Tuomey for $72.4 million in October 2015, and Tuomey was sold to Palmetto Health, a multihospital healthcare system based in Columbia, South Carolina. Under the terms of the government’s settlement agreement with Cox (in which he neither admitted nor denied the allegations), in addition to paying the penalty Cox will also be “excluded for four years from participating in federal health care programs, including providing management or administrative services paid for by federal health care programs.”
  • September 19, 2016—The DOJ announced that North American Health Care Inc. (NAHC) agreed to pay $28.5 million to settle FCA claims for medically unnecessary rehabilitation therapy services: The DOJ said that Orange County, California-based NAHC’s chairman of the board, John Sorenson, and its senior vice president of Reimbursement Analysis, Margaret Gelvezon, also agreed to pay $1 million and $500,000, respectively, in the settlement. According to the DOJ’s allegations (which were neither admitted nor denied by the defendants), NAHC, Sorenson and Gelvezon violated the FCA by causing the submission of false claims to government healthcare programs for medically unnecessary rehabilitation therapy services provided to residents at NAHC’s skilled nursing facilities. The DOJ said that, as part of the settlement, NAHC also entered into a five-year corporate integrity agreement with the HHS-OIG which applies to all facilities managed by NAHC and requires an independent review organization to annually review therapy services billed to Medicare.
  • September 7, 2016—The DOJ announced that two diabetic medical equipment companies agreed to pay over $12 million to resolve FCA allegations involving unsolicited calls: The DOJ said that U.S. Healthcare Supply LLC and Oxford Diabetic Supply Inc. and the two owners and presidents of those companies (brothers Jon and Edward Letko) agreed to pay more than $12.2 million to resolve allegations (neither admitted to nor denied by the defendants) that they violated the FCA by using a fictitious entity (called Diabetic Experts Inc.) to make unsolicited telephone calls to Medicare beneficiaries in order to sell them expensive durable medical equipment. The companies allegedly then submitted claims to Medicare for the equipment that they sold based on these unsolicited calls in violation of the Medicare Anti-Solicitation Statute.
  • September 7, 2016—The DOJ announced that it had filed a complaint against six Vanguard nursing and related facilities as well as Vanguard’s Director of Operations for violations of the FCA: The DOJ’s complaint alleged that the defendants were responsible for the submission of false claims to Medicare and Medicaid for skilled nursing home services that were either nonexistent or grossly substandard. The lawsuit also alleged that the defendants submitted required nursing facility Pre-Admission forms with forged physician and nurse signatures.

Notable non-healthcare resolutions—both involving FHA mortgage lending:

  • October 3, 2016—The DOJ announced that Utah-based Primary Residential Mortgage Inc. and SecurityNational Mortgage Company agreed to pay $5 million and $4.25 million, respectively, to resolve separate allegations arising from FHA mortgage lending: The DOJ alleged that the two lenders violated the FCA by “knowingly originating and underwriting mortgage loans insured by the U.S. Department of Housing and Urban Development’s (HUD) Federal Housing Administration (FHA) that did not meet applicable requirements.”
  • September 13, 2016—The DOJ announced that Regions Bank agreed to pay $52.4 million to resolve FCA liability arising from FHA-insured mortgage lending: The DOJ said that the Alabama-based bank violated the FCA by “knowingly originating and underwriting mortgage loans insured by the U.S. Department of Housing and Urban Development’s (HUD) Federal Housing Administration (FHA) that did not meet applicable requirements.”

FCA-related cases: The following is a brief summary of recent court activity—an SEC complaint and an Eighth Circuit opinion—that touched upon interesting FCA issues:

  • SEC v. RPM International, et al.: On September 9, 2016, the SEC announced that it had filed a complaint against RPM International Inc. (RPM) and its General Counsel/Chief Compliance Officer (GC/CCO) for disclosure and accounting failures in connection with RPM’s $61 million FCA resolution with the DOJ in 2013. The SEC said that, in connection with that FCA settlement, RPM and the GC/CCO failed to disclose a material loss contingency, or record an accrual for, the DOJ’s FCA investigation when required to do so under governing accounting principles and securities laws. The SEC further alleged in the complaint that from 2011 to 2013, when the DOJ was conducting its FCA investigation into RPM and one of its subsidiaries, the GC/CCO (who was in charge of RPM’s interactions with the DOJ) failed to inform any of RPM’s CEO, CFO, Audit Committee, or independent auditors of material facts about the FCA investigation which resulted in the filing of multiple false and misleading documents with the SEC.
  • United States ex rel. Estate of Donegan v. Anesthesia Assocs. of Kan. City, PC: On August 12, 2016, the Eighth Circuit affirmed the grant of summary judgment by the district court in an FCA case and held that the defendant anesthesiology group’s reasonable interpretation of an ambiguous regulation precluded a finding that it knowingly submitted false or fraudulent claims, even if the Centers for Medicare and Medicaid Services or a reviewing court would interpret the regulation differently. The Court said that in this case the relator had failed to provide sufficient evidence, such as official government guidance, to rebut the defendant’s “strong showing” that its interpretation of the ambiguous provision was “objectively reasonable.” The Court further found that, in the absence of such official government guidance, the defendant did not have a duty to inquire into the government’s true intent behind ambiguous regulatory language prior to submitting a claim.