United States: Mintz Levin Health Care Qui Tam Update - June 2018

OVERVIEW OF QUI TAM ACTIVITY

  • We identified 60 health care related qui tam cases that were unsealed in December 2017 and January 2018.
  • The government intervened in 14% of those unsealed cases, which is consistent with the longer term trends we have seen over the prior twelve months.
  • Of the 60 unsealed cases, only 28 were at least initially being litigated. The other 32 were docketed as closed or dismissed.
  • The 60 unsealed cases were filed in 38 different courts. Jurisdictions with the most unsealed cases were the Central District of California (which includes Los Angeles) with six, the Middle District of Florida (including Jacksonville, Orlando, and Tampa) with four, and the District of Connecticut and Eastern District of Louisiana (New Orleans) with three apiece.
  • Pharmaceutical companies, hospitals, and healthcare systems were the most frequently targeted types of defendants, with each accounting for 9 of the 60 unsealed cases. Seven cases were brought against physicians and physician practice groups, six against home health and hospice providers, and five against outpatient clinics.
  • Former employees were again the most frequent relator type, accounting for 23 of the 60 unsealed cases. Current employees only brought two of the cases. Experts accounted for seven cases.
  • Only one of the cases was unsealed within the 60-day period specified by statute. That case was under seal for 55 days. The longest time under seal was almost eight-and-a-half years. Average time under seal for this cohort was 700 days, though half of these cases were unsealed in 16 months or less, and 23 of these 60 cases were unsealed in less than a year.

FEATURED CASES

United States ex rel. Vensel v. Naples Community Hospital, Inc., No. 16-cv-00189-SPC-CM (M.D. Fla.)

Complaint Filed: March 11, 2016

Complaint Unsealed: November 7, 2017

Intervention Status: The government declined to intervene.

Claims: False Claims Act ("FCA"), 31 U.S.C. § 3729 et seq.

Defendants' Businesses: Defendant Naples Community Hospital, Inc. ("NCH") is a community hospital system in Collier County, Florida and is a wholly owned subsidiary of defendant NCH Healthcare System, Inc. Defendant NCHMD, Inc. ("NCHMD") is a physician practice group, which employs physicians at NCH hospitals and clinics and is a wholly owned subsidiary of defendant NCH Healthcare System, Inc.

Relator: Eric Vensel, M.D.

Relator's Relationship to Defendants: Dr. Vensel is a radiologist and a partner in Naples Radiologists, P.A. ("Naples Radiologists"), which co-owned three outpatient imaging centers with NCH. Naples Radiologists had a contract with NCH to provide all radiology services for the co-owned imaging centers. NCH terminated its contract with Naples Radiologists in 2010.

Relator's Counsel: Bryan A. Vroon of Vroon & Crongeyer, LLP and Jonathan Kroner of Jonathan Kroner Law Office

Summary of Case: The relator alleged that NCH's employed physicians were required to refer only to NCH and that each physician's compensation was based on the volume of referrals that each physician made to NCH. The relator generally asserted that NCH absorbed significant losses to pay exorbitant physician compensation in order to generate more revenue through referrals. For example, NCH purportedly compensated one cardiologist more than $920,000 in one year when the 90th percentile of cardiologist compensation was $826,933. The relator contended that NCH also illegally compensated the cardiology group, which referred a high volume of patients, by permitting the cardiologists to work fewer hours than physician groups that referred fewer patients. NCH also allegedly compensated one orthopedic surgeon $2.2 million annually for two consecutive years, when the 90th percentile of orthopedic surgeon compensation was around $1.2 million. According to the relator, NCH's scheme to increase referrals by compensating its employed physicians based on the volume of referrals violated the Anti-Kickback Statute, 42 U.S.C. § 1320a-7b (the "AKS"), the Stark Law, 42 U.S.C. § 1395nn, and the FCA because the arrangements with physicians did not constitute bona fide employment relationships.

Current Status: On October 31, 2017, the United States declined to intervene in the case, and the complaint was unsealed one week later on November 7, 2017. On November 16, 2017, the United States consented to dismissal of the case, and the relator voluntarily dismissed the action on November 22, 2017.

Reasons to Watch: Although this case has been dismissed, it reflects a growing trend in which relators are bringing qui tam actions against hospitals and health care systems for allegedly providing excessive compensation to employed physicians based on anticipated or actual volume of referrals. The U.S. Court of Appeals for the Fourth Circuit held in United States ex rel. Drakeford. v. Tuomey Healthcare System, Inc., 675 F.3d 374 (4th Cir. 2012), that a jury could find that a health care system violated the Stark Law by entering into a medical services agreement with a physician that bases compensation on the anticipated volume of referrals the physician could generate in a year. See also United States ex rel. Drakeford v. Tuomey Healthcare System, Inc., 792 F.3d 364 (4th Cir. 2015). Cases such as Tuomey and Vensel that target physician compensation under the Stark Law and AKS pose particular risks for hospitals located in underserved areas that need to offer highly competitive compensation to attract physicians. In such circumstances, consideration should be given as to whether the compensation can be structured to comply with applicable regulations and safe harbors.

United States and the Commonwealth of Massachusetts ex rel. Collins v. Molina Healthcare, Inc., No. 3:16-cv-30177-MGM (D. Mass.)

Complaint Filed: October 28, 2016

Complaint Unsealed: January 9, 2018

Intervention Status: The federal government and the Commonwealth of Massachusetts declined to intervene.

Claims: FCA, 31 U.S.C. § 3729 et seq. and various state health care fraud statutes and false claims acts.

Defendants' Businesses: Defendant Molina Healthcare, Inc. ("Molina") is a managed care company operating in multiple states, including Massachusetts, and the District of Columbia. Defendant Pathways of Massachusetts, LLC ("Pathways") is a wholly owned subsidiary of Molina and operates mental health centers in Massachusetts.

Relators: Jennifer Collins, Ermelinda Cardona, Iris Castro, and Migdalia Rosaso

Relator's Relationship to Defendants: The relators are former employees of Molina and Pathways.

Relator's Counsel: Thomas J. O'Connor, Jr. of O'Connor Martinelli

Summary of Case: The relators allege the following violations of Massachusetts regulations and credentialing requirements of MassHealth (the Massachusetts Medicaid agency): (1) Molina failed to employ a board-certified psychiatrist on the staff of the Pathways clinics, (2) the psychiatrist supposedly employed by Molina was not on-site at the Pathways clinics for at least eight hours per week, (3) patients were not afforded access to psychiatric medical treatment, and (4) the psychiatrist supposedly employed by Molina failed to adequately supervise Pathways psychiatric nursing staff. The relators contend that, by consistently filing claims for reimbursement under MassHealth, Molina knowingly submitted false claims for reimbursement to federal and state government health care programs in violation of the FCA and Massachusetts false claims statutes.

Current Status: This case is still in the early stages. On December 29, 2017, the United States declined to intervene, and the Commonwealth of Massachusetts also declined to intervene five days later on January 3, 2018. The court then unsealed the complaint six days later on January 9, 2018. Defendants were served on April 9, 2018 and, by agreement of the parties, the defendants' deadline to respond to the complaint was extended to June 25, 2018.

Reasons to Watch: This case presents issues mirroring those presented in Universal Health Services, Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016). In Escobar, the relators alleged that defendant Universal Health did not employ sufficient licensed mental health counselors and was submitting false claims to the government because every time it submitted a claim it certified its compliance with MassHealth mental health facility requirements. The relators prevailed at the pleading stage in the lower courts, and the U.S. Supreme Court upheld those decisions, ruling that a misrepresentation about legal compliance must be material to be actionable under the FCA. This case was filed after Escobar was decided and shows an attempt by relators to model a complaint against a MassHealth provider on the Escobar materiality theory. Although Escobar has strengthened the ability of defendants to assert materiality as a defense against FCA liability arising from regulatory noncompliance, this case evidences the ability of relators to rely on Escobar to define what types of regulatory noncompliance might satisfy the materiality element of an FCA claim.

Given the parallels to the successful allegations in Escobar, it is unclear based on the unsealed materials why the government declined to intervene here. It is possible that the government concluded based on its investigation that there was insufficient factual support for relators' allegations to warrant intervention. Interestingly, the parties' joint motion for extension of the defendants' response deadline to June 25, 2018, indicates that "[t]he Parties' counsel plan to discuss this matter in detail before Defendants respond to the Complaint." Presumably, such discussions would allow the defendants to share with relators any information provided to the government that would weigh against moving forward. Whether the case will be litigated notwithstanding the parties' discussions will become clear by the June 25 deadline.

United States of America ex rel. Medrano v. Diabetic Care RX, LLC, No. 15-cv-62617-BLOOM (S.D. Fla.)

Complaint Filed: December 14, 2015

Complaint Unsealed: December 19, 2017

Intervention Status: Partial intervention by the United States on December 15, 2017.

Claims: FCA, 31 U.S.C. § 3729 et seq., AKS, 42 U.S.C. § 1320a-7b

Defendants' Businesses: Diabetic Care Rx, LLC dba Patient Care America ("PCA") is a compounding pharmacy. Riordan, Lewis & Haden, Inc. ("RLH") is a private equity group and majority owner of Patient Care America. Patrick Smith, Matthew Smith, and Thomas Buscemi are executives at Patient Care America.

Relators: Marisela Carmen Medrano ("Medrano") and Ada Lopez ("Lopez")

Relators' Relationship to Defendants: Medrano was Patient Care America's Director of Marketing from September 2, 2014, to July 8, 2015; Lopez was Patient Care America's Reimbursement Services Manager from April 2014 to June 2015.

Relators' Counsel: Relators' counsel not listed (U.S. Attorney's Office representing the government in the part of the case in which there was intervention.)

Summary of Case: As previously detailed in Mintz Levin's Health Law Policy Matters blog, the government's complaint in intervention alleges that PCA's purported wrongdoing began shortly after RLH's investment in 2012. PCA was then in the business of providing intravenous nutritional therapy to dialysis patients. Soon thereafter, two RLH partners became officers, directors – or both – of PCA. The government alleges that, while in these roles, they directed PCA to aggressively pursue an entirely new line of business – topical compounding – to increase the company's value in anticipation of selling PCA in five years. The government claims that PCA then brought in a new CEO (despite the fact that a talent consultant allegedly cautioned PCA that the candidate would require "careful management"), and the CEO then hired a licensed pharmacist to lead the new business line because of his ability to "generate immediate referrals." The CEO and the pharmacist are the individuals named in the complaint.

The government claims that PCA engaged marketing companies as independent contractors to generate prescriptions for its topical compounds, and these companies were compensated through a 50% commission on profits generated from the prescriptions they submitted to PCA, despite PCA allegedly receiving legal advice from multiple attorneys cautioning against such compensation arrangements. According to the government, PCA exercised little or no oversight over the marketing companies, essentially giving them the freedom to generate prescriptions as they pleased.

The complaint asserts that the marketers misled TRICARE beneficiaries to induce them to obtain the prescriptions, paid kickbacks to physicians who submitted prescriptions without seeing the patients, and set up a sham charitable organization with the help of PCA to pay for beneficiary copayments. The government further alleges that PCA exploited TRICARE's practice at the time to reimburse pharmacies for all ingredients in a compounded drug by repeatedly modifying its compounding formulas to increase reimbursement for its pain management products. The government claims that PCA received more than $68 million during the period of the alleged fraud and that amount constituted nearly all of PCA's revenue by March 2015.

Current Status: Defendants have moved to dismiss the complaint. The motion is still pending. Meanwhile, the court has adopted a scheduling order that has set a trial date for August 2019.

Reasons to Watch: What is particularly noteworthy is that the complaint names a private equity firm that holds a majority ownership stake in the company as one of the defendants. Ordinarily, owners and shareholders are not named as defendants in FCA cases. However, some private equity companies actively participate in the management of their portfolio companies, and this case highlights the risk that close involvement in such management could create.

HEALTH CARE QUI TAM LITIGATION TRENDS

Mintz Levin maintains a database of unsealed health care qui tam actions. This enables us to follow and analyze trends in the cases that have been unsealed. The following are some trends in qui tam filings against health care-related entities in the twelve months ended March 31, 2018:

Where were cases filed? Although cases were unsealed in jurisdictions throughout the country, some interesting trends have emerged as to jurisdictions where the most cases have been unsealed:

Over the twelve months ended on March 31, there was significant activity in Florida, with fifteen cases being unsealed in the Middle District (Tampa, Orlando, and Jacksonville), and twelve being unsealed in the Southern District (Miami and West Palm Beach). California also has seen a large number of filings, with the Central District – which includes Los Angeles – leading the way. Also particularly active is the Eastern District of New York, which includes Brooklyn, Queens, and Long Island.

What kinds of businesses were targeted? Hospitals, pharmaceutical manufacturers, outpatient clinics, hospices, and pharmacies continue to be most frequently sued:

Who brought the cases? Current and former employees – mostly the latter – dominate the ranks of relators, accounting for 57% of all case filers. So-called "expert" relators are making up a growing portion of the qui tam docket, accounting for 6% of the filers in cases unsealed in the twelve months ended March 31, 2018.

How frequently did the government intervene?

Intervention rates continue to be extremely low, with the government declining to intervene in fewer than four out of every five cases unsealed over the twelve months ended March 31, 2018.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Kevin M. McGinty
Thomas S. Crane
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions