This issue of McDermott'sHealthcare Regulatory Check-Uphighlights significant activity between September 21 and October 20,2022. We review several criminal and civil enforcement actions related to Anti-Kickback Statute (AKS) and beneficiary inducementissues, as well as allegations of false claims. This issue also examines a recent Office of Inspector General (OIG) advisory opinionrelated to a proposed patient assistance program for Medicare Part D cost-sharing obligations.



A Massachusetts pharmaceutical company agreed to pay $900 million in connection with settlement of aqui tamsuit alleging thatthe company caused the submission of false claims by paying kickbacks to physicians to induce prescriptions of the company'sdrugs. The company offered and paid remuneration in the form of speaker honoraria, speaker training fees, consulting fees andmeals to healthcare professionals who spoke at or attended the company's speaker programs, speaker training meetings orconsultant programs to induce them to prescribe the company's multiple sclerosis drugs. The settlement resolves a long-runninginvestigation prompted by aqui tamcomplaint filed in 2012 that has been in ongoing litigation since 2015. On July 5, 2022, thedistrict court found that a violation of the federal AKS isper sea violation of the False Claims Act (FCA) and related state falseclaims act statutes. The ruling extended to the false claims act statutes of California, Connecticut, Georgia, Illinois, Massachusetts,New Jersey, New York, North Carolina, Tennessee and Wisconsin. Following the court's ruling on the relator's motion for partialsummary judgment, the parties notified the district court of a settlement in principle on July 20, 2022, with the settlement announced by the US Department of Justice (DOJ) on September 26, 2022.


An Oklahoma-based home health company, along with its chief executive officer (CEO) and chief operating officer (COO), enteredinto two settlements with DOJ, one in Oklahoma and Texas and another in Florida, to resolve FCA allegations related to billing,AKS and Stark Law violations. The company, the CEO and the COO will pay approximately $30 million collectively to resolve theallegations, and the CEO and COO agreed to be excluded from participation in federal healthcare programs for five years. Thecompany also agreed to enter into a five-year corporate integrity agreement with OIG. The Oklahoma and Texas suit involvedallegations that the company improperly paid home health medical directors to induce referrals of patients in violation of the AKSand Stark Law. The Florida suit alleged that the company submitted claims for therapy services without regard to medical necessityand overbilled therapy services by upcoding the patients' medical diagnoses.


DOJ filed a complaint in intervention in aqui tamsuit alleging violations of the FCA related to diagnosis codes submitted for beneficiaries by a health insurance companyin connection with the Medicare Advantage (MA) program. DOJ alleged that the insurer contracted with vendors to conduct home visits for MA beneficiaries. During the home visits, the vendors allegedly did not actually provide clinical care, chronic care or care management services. Instead, the visits were intended to capture and identify diagnosis codes based on the patients' self-assessment of their conditions and responses to basic screening questions. The health insurer then submitted diagnosis codes based on information captured by the vendors during the home visits. This case is currently pending in the Middle District of Tennessee.


A California health system and its affiliate agreed to pay more than $13 million to settle allegations that they violated the FCA by billing federal healthcare programs for toxicology screening tests actually performed by outside labs. According to the allegations, from August 1, 2016, to June 30, 2017, the system participated in an agreement with a third party to refer urine toxicology specimens obtained from third-party physicians and laboratories to the system. The system then billed for qualitative and quantitative testing, but the quantitative testing was actually performed by outside third-party laboratories.


On October 18, 2022, DOJ announced a series of charges, convictions and sentencings in connection with DOJ's initiative to investigate fraud in various COVID-19 pandemic relief programs, including funding provided under the Coronavirus Aid, Relief, and Economic Security (CARES) Act and the Paycheck Protection Program (PPP). These actions are connected to the DOJ's continuing effort to prosecute criminal cases connected to CARES-Act-related fraud schemes.

DOJ also recently announced the settlement of an FCA case against a lender that improperly processed a PPP loan on behalf of an ineligible physician-owned entity. At the time of the application, the physician owner of the entity was facing criminal charges arising from opioid medication prescribing practices. The lender allegedly knew that the physician was subject to criminal prosecution and was ineligible to apply for a PPP loan, but processed and granted the application regardless. The lender agreed to settle for $18,000.


Consistent with the government's stated commitment to prosecute fraudulent telehealth schemes, as detailed in the OIG's September 2022 Data Brief, several recent enforcement actions focused on cases involving telefraud.

A Missouri-based business owner was sentenced to 30 months in prison and ordered to repay $7.5 million for his role in a healthcare fraud scheme. The individual had previously owned or operated several companies that supplied orthotic braces and other durable medical equipment (DME). The individual contracted with marketing firms that placed advertisements on television and online that offered orthotic braces at no cost. These marketing companies sent patient information to a telemedicine physician who signed orders for DME, allegedly without evaluating or communicating with the patient. The companies, at the direction of the business owner, paid a percentage of the profits to the marketing firms that provided patient "leads" and directly billed federal healthcare programs for DME. After the business owner was suspended from Medicare in 2017 for paying illegal kickbacks, his office manager and operations manager established new DME companies, concealing the previously suspended business owner's role in the new entities. The new DME companies continued to pay kickbacks for referrals and leads. Between June 5, 2018, and March 21, 2019, $1.8 million in fraudulent reimbursement claims were submitted to Medicare, and another $15,540 in fraudulent reimbursement claims were submitted to Tricare on behalf of the new DME companies created by the business team.

A Fort Lauderdale pharmacy investor pleaded guilty to conspiring to commit healthcare fraud that amounted to $8.3 million in Medicare Part D reimbursement. The scheme involved pharmacy owners paying kickbacks and bribes to telemarketers and telemedicine providers in exchange for orders for medically unnecessary prescriptions that were billed to Medicare. The pharmacies paid telemarketing companies to recruit Medicare beneficiaries for prescription topical creams. Pharmacies then paid participating telemedicine companies kickbacks for employing or contracting with physicians who would prescribe without establishing the physician-patient relationship, or even without ever communicating with the patient. The pharmacy owner has yet to be sentenced and faces a maximum penalty of 10 years in prison

A Miami-based business owner was sentenced to 55 months in prison followed by three years of supervised release for submitting more than $2.2 million in fraudulent billings to Medicare. From November 2021 through May 2022, the Florida corporation purported to provide DME to eligible Medicare beneficiaries. In a five-month period in 2022, the company submitted approximately $2.2 million in fraudulent healthcare claims to Medicare for DME that the corporation never provided and that Medicare beneficiaries never requested. As a result, Medicare paid more than $1.4 million to the company. In addition to the prison sentence, the business owner was ordered to pay almost $1.5 million in restitution to Medicare, and the judge entered a forfeiture money judgment also in the amount of nearly $1.5 million

A Washington physician pleaded guilty to conspiring to accept kickbacks as part of afraudulent genetic testing scheme targeting elderly Medicare beneficiaries. The scheme resulted in more than $18.6 million in Medicare payments and more than $167,900 in kickbacks to the physician from his co-conspirators. The physician placed orders for genetic testing for Medicare beneficiaries throughout Washington and other states, despite having no physician-patient relationship with these beneficiaries. The physician would only contact these patients by phone for a few moments through telemarketers to place orders for genetic testing. The laboratories involved in the scheme would then bill Medicare for the tests and another company would bill up to tens of thousands of dollars for the supposed telemedicine visit.


A New-Jersey-based pediatric dentist, his company and 13 affiliated pediatric dentistry practices agreed to pay $753,457 to resolve allegations that they violated the FCA by allegedly performing and billing for medically unnecessary therapeutic pulpotomies on pediatric patients between 2011 and 2018. Pulpotomies are generally used to restore infected baby teeth in children, but the defendants allegedly provided these procedures to children with insufficient evidence of dental decay. The defendants also settled allegations that in some instances between 2011 and 2014, they made billing errors to New York and New Jersey Medicaid contractors that resulted in inaccurate information regarding the provider who furnished the services on claims for services performed at three locations.


Owners of home health companies in Illinois and Indiana were sentenced in a scheme involving $6.7 million in home healthcare fraud. The duo paid bribes and kickbacks to patient marketers in exchange for referrals of Medicare beneficiaries from 2009 to 2018. One owner falsely represented that she performed assessments of patients as a registered nurse on dates when she was out of the country, resulting in fraudulent claims submitted to Medicare. The companies would also repeatedly admit, discharge and re- certify select patients, regardless of their medical conditions. One owner was sentenced to two years in prison and ordered to pay more than $6.6 million in restitution, while the other owner was sentenced to 18 months in prison and ordered to pay almost $1.6 million in restitution.



Molina Healthcare of Illinois Inc, et al. v. Prose, No. 21-1145;United States ex rel. Owsley v. Fazzi Associates Inc, et al., No. 21- 936; andJohnson, et al. v. Bethany Hospice and Palliative Care LLC, No. 21-462

On October 17, 2022, the Supreme Court of the United States declined to hear three cases deciding whether whistleblowers must provide details about the fraudulent claims allegedly submitted by providers. In their application, petitioners pointed to the existence of a significant circuit split on the issue and requested clarity on the required pleading standard under Fed. R. Civ. P. 9(b), which requires FCA plaintiffs to "state with particularity" circumstances of the alleged fraud.

The Supreme Court's decision leaves in place conflicting rulings by the US Court of Appeals for the Seventh Circuit (allowing a whistleblower case to proceed against managed care company Molina Healthcare) and the Sixth and Eleventh Circuits (upholding dismissals of whistleblower cases against home health provider Care Connection of Cincinnati and hospice provider Bethany Hospice & Palliative Care, respectively).

Circuit courts have generally taken one of two approaches in FCA cases. Courts either require that relators present specific cases of a defendant's fraudulent billing practices, or permit cases to proceed with less specific descriptions of potentially fraudulent practices if the evidence appears to be reliable. In the three cases at issue, both whistleblowers and defendants argued that the Rule 9(b) pleading requirements regarding the required level of detail in FCA pleadings are part of a long-existent circuit split that will, according to the defendants, encourage whistleblowers to shop around for the most favorable venue with lenient pleading requirements (such as the Ninth Circuit, which is said to have one of the most lenient standards). Given the differing pleading standards, cases with a similar set of allegations can have dramatically different outcomes depending on venue.

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