Category: Anti-Kickback Statute

Civil Investigative Demands: Broad, Unfair and Legal


The U.S. government’s unilateral investigative powers under the False Claims Act were bolstered by a ruling from the U.S. District Court for the Eastern District of California last week. Ruling on a Petition for Summary Enforcement of a Civil Investigative Demand (“CID”), the court held:

  • Settlement discussions with a person or entity involved in a CID do not preclude the government from investigating others associated with that entity; and
  • Extended, unilateral, ex parte discovery, while reflective of “an imbalance of power,” do not provide a legal basis for finding CIDs unenforceable.

In U.S. v. George Picetti, III, M.D., the United States investigated possible violations of the Anti-Kickback Statute and Stark Law arising from a relationship between Dr. Picetti and Christina Holland, an owner and operator of several medical device companies. As part of its investigation, the Department of Justice used its power of administrative subpoena to demand documents and oral testimony from Dr. Picetti. Dr. Picetti objected, arguing that the DOJ lacked authority to enforce the investigative demand because the government already elicited settlement discussions from Nexxt Spine, one of the medical device companies involved in the investigation.

The court adhered to a plain reading of the FCA, holding that the government may issue and force compliance with a CID where: 1) an individual may have information relevant to a false claims investigation; and 2) as long as the government has not yet commenced a civil proceeding under the act. The court emphasized that second factor: investigations are only limited to “the actual commencement of a civil action or an election related to actual qui tam litigation.” The settlement negotiations with a related entity in this case did not equate to the commencement of a civil action and so the government’s investigation of Dr. Picetti could continue.

Dr. Picetti also tried to dismantle the government’s investigation by arguing that CIDs are inherently unfair and allow the government to conduct “extended, unilateral ex parte discovery past the point when a civil action should have been commenced…thus giving respondent unequal access to the tools of civil discovery.” The court agreed with Dr. Picetti’s spin on the broad investigative authority granted by Congress but ultimately held that Congress’s intent was clear, and unless a subject of the investigation can show that an inquiry is “unreasonable because it is overbroad or unduly burdensome,” the subject of the investigation must comply with the government’s demands.

The court’s sympathetic but unforgiving enforcement of the CID in this case could prove a powerful tool for the government, allowing it to demand participation in broad investigations. Individuals or entities involved in such investigations must act quickly and, if possible, challenge the breadth and burden of the investigation to limit their liability.

The Granston Memo’s Effect: The DOJ is Dismissing Meritless and Frivolous Actions


The DOJ plans to dismiss eleven FCA lawsuits involving the new theory that patient assistance services supplied by drugmakers are unlawful kickbacks.[1] These lawsuits were brought by shell company whistleblowers backed by the National Healthcare Analysis Group (NHCA), a company that specializes in generating FCA cases. The eleven cases were essentially the same complaints with a different defendant.

The dismissals stem from the DOJ’s Granston memo, which directed federal attorneys to be more aggressive about ending flimsy FCA suits that are causing the government to incur substantial costs to litigate. It also hints that the DOJ is casting doubt on a theory that drugmakers have provided kickbacks to prescribers by assisting with prior authorizations and arranging for nurses to educate patients on proper drug use. Although the NHCA’s reaction accused the government of having a “disturbing alignment with Big Pharma,” the government contends that its high spending on prescription drugs creates a strong interest in making sure patients have basic product support in relation to those medications. These lawsuits “would undermine common industry practices the federal government has determined are, in this particular case, appropriate and beneficial to federal health care programs and their beneficiaries.” The cases also involved allegations of “white coat marketing,” which entails hiring contracted nurses to act as undercover sales reps who engage in prohibited marketing activities. However, the DOJ overlooked those claims, and still wants to dismiss these lawsuits.

The DOJ also accused the NHCA of dishonesty by saying that the transcripts from the “witness interviews reveals the false pretenses NHCA Group uses to obtain information.” Even with the government’s actions on the suits, NHCA believes that a handful of states will ultimately pursue the kickback claims independently, and that the NHCA may choose to challenge the DOJ’s dismissal efforts.

The eleven cases are:

  • S. ex rel. Health Choice Group LLC v. Bayer Corp. et al., case number 5:17-cv-00126;
  • S. ex rel. Health Choice Alliance LLC v. Eli Lilly & Co., case number 5:17-cv-00123;
  • S. ex rel. Health Choice Advocates LLC v. Gilead Sciences Inc. et al., case number 5:17-cv-00121;
  • S. ex rel. Miller v. AbbVie Inc., case number 3:16-cv-02111;
  • S. ex rel. CIMZNHCA v. UCB Inc., case number 3:17-cv-00765;
  • S. ex rel. Carle v. Otsuka Holdings Co., case number 17-cv-00966;
  • S. ex rel. SCEF LLC v. AstraZeneca PLC, case number 17-cv-01328;
  • S. ex rel. SMSF LLC v. Biogen Inc., case number 1:16-cv-11379;
  • S. ex rel. SAPF LLC, v. Amgen Inc., case number 16-cv-05203;
  • S. ex rel. SMSPF LLC v. EMD Serono Inc., case number 16-cv-05594; and,
  • S. ex rel. NHCA-TEV LLC v. Teva Pharmaceutical Products Ltd., case number 17-cv-02040.


The government’s move to dismiss the NHCA cases is consistent with the trend since the Granston memo to investigate qui tam cases more closely to weed out the frivolous and abusive, both to avoid unnecessary costs to the government and to protect providers from the time and expense of defending against them. It also demonstrates that the government is more willing than ever to consider the validity of novel FCA theories, rather than allow relators courts to create new rules for the administration of the federal healthcare programs.

Department of Justice Announces $42 Million Settlement for Alleged False Claims Act Violations

Recently, the Department of Justice (“DOJ”) announced it had entered into a $42 million settlement (“Settlement”)[1] with the owners of a California acute care hospital (“Parent Company”) to resolve allegations that the Parent Company had violated the False Claims Act by submitting false claims to Medicare and MediCal (California Medicaid) programs. The Parent Company is a fully integrated health care company comprising the Hospital at issue, a managed care organization, two physician practice associations and 50 percent ownership in a health plan specifically for MediCal. Nearly $32 million will be paid to the United States to settle allegations of false claims against Medicare and $10 million will be paid to the state of California to settle the allegations that carried potential damages of over $400 million.


A former manager of the Hospital filed the qui tam (i.e., whistleblower) action under seal in June 2013. The Complaint alleged improper relationships between the Parent Company and physicians and that the Parent Company compensated the physicians in excess of fair market value and took into account the volume or value of referrals to the Hospital by the physicians. In addition, the Complaint alleged that the Hospital violated the Civil Monetary Penalties Law (“CMP”) by inducing federal health care program beneficiaries to choose certain providers. Although both governments declined intervention in the case, the relator moved forward. In its Settlement announcement, the DOJ stated, “This settlement is a warning to health care companies that think they can boost their profits by entering into improper financial arrangements with referring physicians.”

Details Alleged in the Complaint

The relator alleged violations of both the Stark Law and the Anti-Kickback Statute for actions beginning in 2006. The relator alleged the Parent Company violated both statutes by entering into arrangements with physicians that accounted for the volume of the physicians’ patient referrals to the Hospital and intentionally induced referrals. Allegedly problematic arrangements between the hospital and various members of its medical staff included:

  • Sublease Agreements: The Hospital entered into sublease arrangements with various physicians in order to host one-hour monthly meetings with federal health care program beneficiaries in the physicians’ offices. The rental value for these arrangements exceeded fair market value and accounted for the volume or value of referrals from the physicians. Additionally, the rent was paid on a monthly basis regardless of whether or not the Hospital conducted any meetings in the physicians’ offices.
  • Shared Marketing Agreements: The Hospital entered into Shared Marketing Agreements with physicians in order to increase the physicians’ patient base and revenues. These initiatives were paid for by the Hospital matching the costs paid for by the physicians. The marketing services provided under these agreements included the advertisement of free transportation available to potential patients.
  • Vendor Marketing Agreements: The Vendor Marketing Agreements were similar to the Shared Marketing Agreements but without any cost-sharing by the physicians.
  • Medical Directorship Agreements: The Medical Director Agreements were entered into based upon a target number of referrals/admissions to be made to the Hospital by the physicians. The relator purported to hear the Hospital’s Vice President of Business Development tell a physician that he would receive a Medical Director appointment only if the physician referred or admitted 15-20 patients each month.

The relator claimed that the Parent Company paid remuneration directly to MediCal-enrolled expectant mothers as an inducement to receive maternity services from the Hospital but only if she chose to deliver her baby at the Hospital.

Alleged Evidence of Improper Intent

The relator alleged that the Hospital tracked referrals from physicians and threatened to cancel (or does cancel) arrangements if referral targets went unmet. The Hospital’s marketing team also allegedly conducted weekly discussions of physician referrals including physicians failing to meet referral targets.

The relator claimed personal knowledge of key conversations. These included conversations on providing physicians with compensation in exchange for a guaranteed number of referrals and/or inpatient admissions per month. While many of these discussions were verbal, the Complaint provided evidence of written logs from physician integration representatives documenting similar communications with referring physicians. These written communications summarized conversations with physicians regarding compensation in exchange for patient referrals. In some instances, physicians were told they would receive sublease and/or marketing arrangements if they increased the number of patients they referred to the Hospital.

The Hospital allegedly tracked referrals from physicians and calculated an estimated return on investment for the compensation that was paid to the physicians in exchange for the promise of patient referrals. The Hospital’s staff would then categorize referring physicians into separate tiers based upon the actual and goal volumes of patient referrals and the corresponding return on investment.

Practical Takeaways

  • As a part of the Settlement, the Hospital denied most of the allegations and all liability. However, providers can learn from the behavior that led to the qui tam action in order to limit potential liability for similar types of arrangements and programs.
  • While some of the alleged conduct of the Hospital may show evidence of an improper intent on behalf of the parties, not all of the agreements described in the Complaint are per se improper. As such, it is imperative for health care organizations to ensure that they are entering into arrangements for proper purposes (such as community need/benefit, satisfaction of regulatory requirements, population health management, compliance with bundled payment programs, etc.) and that no purpose of any proposed arrangement is to induce or reward referrals from the referring entity.
  • Health care providers should consult with legal counsel regarding the safeguards that should be in place prior to implementing any protocols to monitor referrals. In addition, providers should be careful regarding calculating things like the return on investment or “contribution margin” associated with referrals by physicians.
  • When engaging in new physician arrangements, particularly those that are intended to market hospital and physician services and/or provide community outreach to federal health care program beneficiaries, health care organizations should consult with legal counsel in order to ensure that the proposed arrangement is appropriate and legally compliant.
  • Health care organizations that believe they may have identified arrangements that may be potentially problematic should consult legal counsel as soon as possible in order to review the arrangements and begin any necessary remedial steps.

If you have any questions or would like more information about this topic, please contact:

[1] For a copy of the DOJ press release, click here.

Seventh Circuit: “Information and Belief” Insufficient under 9(b)

In U.S. ex rel. Grenadyor v. Ukranian Village Pharmacy, Inc. et al., the Seventh Circuit affirmed a trial court’s dismissal  of a whistleblower’s complaint for its failure to provide sufficient specificity regarding the alleged fraud. In the opinion, Judge Posner drives a stake through the heart of a common boilerplate phrase  with clarity and precision that makes a refreshing read for legal and non-legal readers alike.

Continue Reading →

DOJ Announces that 2014 Sees Record FCA Recoveries and Whistleblower Lawsuits

Yesterday, November 20, the Department of Justice (“DOJ”) announced that the United States had recovered almost $6 billion from False Claims Act (“FCA”) litigation in 2014 – marking the first time the DOJ has recovered more than $5 billion in a single year.

With these recoveries, the DOJ reached several milestones. Not only was this the largest recovery year for the DOJ, but it makes 2014 the third consecutive year that the DOJ has announced record recoveries. The record recoveries were bolstered by over 700 whistleblower lawsuits filed on the government’s behalf in 2014. Of the total $5.69 billion recovered, almost $3 billion was recovered in lawsuits filed by whistleblowers in qui tam actions under the FCA…. Continue Reading →

New 11th Circuit Case: Fraud with Particularity

Last week, the 11th Circuit Court of Appeals issued its unpublished ruling in US ex rel. Mastej v. Health Management Associates, Inc. At issue was whether the relator’s Third Amended Complaint adequately pled fraud with particularity, as required by Fed.R.Civ.Pro. 9(b).

Mastej was an Health Management Associate (“HMA”) executive from 2001 to February 2007. In that role, he attended monthly meetings and participated in discussions “in which Medicare and Medicaid patients and billing were discussed.” In February 2007, Mastej left HMA to work as CEO of a subsidiary facility.

Mastej alleged that the defendants violated the Stark Law and the Anti-Kickback Statute by giving free trips to golf outings on private jets and paying above-market rates for unnecessary call coverage to neurosurgeons all in exchange for Medicare and Medicaid referrals to the HMA facilities. Said violations, he alleged, made any payments, even for medically necessary services, non-payable. He alleged false claims were submitted in (a) the filing of interim claim forms for patients; (b) the filing of annual cost reports; and (c) a reverse false claim allegation based upon the submission of those forms and reports.

The defendants moved to dismiss based upon Fed.R.Civ.P. 9(b), which requires that claims of fraud be pled “with particularity.” Specifically, the defendants noted that Mastej did not identify a single specific claim for a patient or a specific date of a particular claim.

The court began its analysis by noting that an FCA relator may not merely describe a scheme to defraud but must also describe sufficient detail to show an actual false claim was submitted to the government. It then agreed with the defendants that the complaint did not show a specific false claim submitted to the government.

Having found that Mastej failed to plead fraud with particularity by identifying specific claims, the court then considered whether he otherwise offered sufficient indicia of reliability to survive the motion to dismiss. In the 11th Circuit, Rule 9(b) motions are considered “on a case-by-case basis,” and there are ways to demonstrate such reliability other than identifying specific claims.

The court found that Mastej, as a corporate insider who participated in discussions about claims to and payments by Medicare and Medicaid, pled fraud with sufficient particularity through 2007. However, the court refused to extend that knowledge beyond the time he left HMA and went to work for an HMA subsidiary. The court did not accept the assumption that HMA’s deeds were ongoing, but said he had “not provided the required indicia of reliability for his general allegation that the Defendants submitted false claims for referred patients to the government after Mastej stopped working for the Defendants.” (emphasis in original.)

The ruling is of interest for two reasons. First, it continues the 11th Circuit’s nuanced view of Rule 9(b), favoring identification of specific fraudulent claims, but allowing case-by-case analysis to demonstrate other indicia of reliability. Second, and perhaps more interesting, it did not allow a qui tam relator to claim knowledge during a specific time period then extrapolate that time beyond the actual knowledge. Given the specificity of the court’s ruling, it should be unlikely that discovery beyond the 2007 period would be permitted. This alone would place a significant limit on the ability of relators to turn a small amount of information into a large amount of recovery.

If you have any questions or would like more information on this topic, please contact David B. Honig at (317) 977-1447 or or your regular Hall Render attorney.

Safe Harbors Less Safe in Ohio


In a new case from the Southern District of Ohio, US_v_MillenniumRadiology, the court denied a motion to dismiss a False Claims Act suit, finding that compliance with a safe harbor could only be raised on summary judgment. The court also found that uncompensated service as a medical director could form the basis for a False Claims Act suit based upon violation of the Anti-Kickback Statute.

Millennium Radiology and Mercy Health Partners entered into a series of agreements making Millennium Mercy’s exclusive radiology provider. Mercy provided the space and equipment needed to provide the services, Millennium billed professional components and Mercy billed technical components of radiology services. Mercy also paid Millennium a lump sum for start-up costs, a monthly advance for operating costs and, in the first agreement, a salary for medical director services. In a subsequent agreement, Mercy added a recruiting allowance of up to $25,000 per physician to recruit two physicians and dropped compensation for the medical directorship. Relator, a former Millennium employee, alleged Millennium marketed Mercy to other doctors in exchange for an illegal kickback, the agreement with Mercy. He also alleged that Mercy’s attorney advised that the agreement might be illegal.

The court agreed with defendants that relator was required to allege that Millennium received something, in this case marketing and medical director services, for less than fair market value. However, the court then concluded, “providing these services for free would necessarily be providing them at below market rates and below costs.”

In a footnote, the court refused to consider the defendants’ argument they met the “Personal Services Arrangement Safe Harbor” to the AKS, concluding safe harbors are affirmative defenses; therefore, the court reasoned, they were to be considered at the summary judgment rather than the motion to dismiss stage. While this makes sense from a purely procedural point of view, it is contrary to the prevailing law and the purpose of safe harbors.

Safe harbors are regulatory in nature. They assure providers that they can take actions that, while technically in violation of the FCA, are acceptable to the Medicare program. Compliance with a safe harbor, therefore, should be considered at the motion to dismiss stage to show lack of knowledge on the part of the defendant. False Claims Act law is rife with decisions that state reliance upon regulations or direction from the government shows a lack of knowledge sufficient to allege an FCA violation. In US ex rel. Lee v. Corinthian Colleges, 655 F.3d 984 (9th Cir. 2011), the court stated the relator was required to plead, at the motion to dismiss stage, that the defendant “knew, or acted with reckless disregard of the fact that [its program] did not fall within the DOE Safe Harbor Provision;” or “even if it believed [it fell under the Safe Harbor Provision], it knew or acted with reckless disregard of the fact that, in reality, [individuals were acting outside that provision].” Id. at 997. This is consistent with a long body of case law that holds government contractors relying on good faith interpretations of regulations are not subject to FCA liability. See, e.g. US ex rel. Oliver v. Parsons Co., 195 F.3d 457, 464 (9th Cir. 1999). Other District Courts have required relators to allege noncompliance with a safe harbor provision at the motion to dismiss stage. See, e.g., US ex rel. Carpenter v. Abbott Laboratories, Inc., 723 F.Supp.2d 395 (D.Mass. 2010); US ex rel. Osheroff v. Humana, Inc., 2012 WL 3379072 (S.D.Fl. 2012); and Parikh v. Citizens Medical Center, 977 F.Supp.2d 654 (S.D.Tx. 2013).

False Claims Act cases are tremendously complex and expensive. The idea that a defendant could rely upon a regulatory safe harbor yet be forced to participate in discovery that can cost millions of dollars is shocking. From a purely procedural standpoint, it might make sense because the defendant would ultimately be given an opportunity to rely upon the safe harbor to defeat the prosecution. However, in reality, reliance upon the safe harbor in the face of FCA expense and potential liability, is so cheapened that it may well become useless. The decision, should it be followed in other courts, would defeat the purpose of the safe harbor.

If you have any questions or would like more information on this topic, please contact David B. Honig at (317) 977-1447 or or your regular Hall Render attorney.