Overview
In this issue:
- The Department of Justice (DOJ) releases its civil fraud enforcement statistics for FY2022
- A California court pauses relator's qui tam suit until parallel criminal proceedings are resolved
- A New York apparel importer settles a civil suit for $1.3 million
- Two significant public disclosure decisions in New York and Florida
Despite Reduction in FCA Recoveries in 2022, DOJ Announces its Second-Highest Number of Settlements and Judgments
The DOJ released its annual statistical report on recoveries under the False Claims Act (FCA) for Fiscal Year 2022 yesterday (available here). DOJ’s settlements and recoveries under the FCA dropped significantly in 2022, totaling approximately $2.2 billion as compared to $5.6 billion in FY 2021— a notable decrease of nearly 61 percent. However, 2021 was an outlier in FCA recoveries with the second largest annual total in FCA history based in large part on two significant resolutions with prescription opioid manufacturers: Indivior Inc. and Indivior PLC, and Purdue Pharma. Recoveries in 2022 were in line with FCA recoveries in FY 2020 of $2.3 billion.
In contrast to the reduction in the total amount of recoveries, the number of FCA settlements and judgments was up last year to 351, the second-highest number of settlements and judgments in a single year. The number of new matters (both qui tam and non-qui tam) was also the highest it has been since 1986, indicating robust FCA activity in terms of newly received referrals, investigations, and qui tam actions.
Of the $2.2 billion in reported settlements and judgments, over $1.9 billion arose from lawsuits that were filed under the qui tam provisions of the FCA and pursued by either the government or whistleblowers. There were 652 new qui tam matters filed in 2022. However, a notable proportion of qui tam recoveries – over 60 percent – were in cases in which the government declined to intervene, underscoring the critical role that whistleblowers play in FCA enforcement and the apparently greater willingness of the government to allow relators’ counsel to pursue non-frivolous claims on their own. Further evidence of the significant role played by relators in FCA cases is reflected in the $488 million paid to relators in FY 2022, which reflects the portion of settlements or judgments attributable to relators’ claims, and is the highest relators’ share since 2017.
During this period, a smaller proportion of FCA recoveries in terms of dollar amount were attributable to non-qui tam, or government-initiated, cases than in FY 2021. Of the $2.2 billion in recoveries in FY 2022, approximately $245 million was recovered in government-initiated cases as compared to the nearly $4 billion recovered in non-qui tam cases (of a total $5.6 billion) in FY 2021. However, this reduction from the previous fiscal year could again be a result of two outsized settlements in FY 2021 in government-initiated cases involving opioid manufacturers Indivior, Inc., Indivior, PLC, and Purdue Pharma LP. The number of new non-qui tam matters in FY 2022 of 296 was among the highest since 1986, so there is still a strong pipeline for government-initiated actions. This may be indicative of more active Offices of Inspector General, and the government’s increasing use of large-scale claims data as a monitoring and detection tool.
Consistent with prior years, the 2022 data show that healthcare fraud is, by far, the largest category of FCA recoveries – it represented over $1.7 billion in recoveries. DOJ reported that fraud and abuse in the Medicaid program and specifically two settlements with Mallinckrodt ARD LLC and Gold Coast Health Plan, a county-organized health system in California, and three of its providers, were responsible for $330.7 million in FCA recoveries in FY 2022. DOJ also pursued FCA claims in matters involving the billing of federal health care programs for medically unnecessary services against a diverse array of defendants, including nursing homes, a home healthcare services company, a pharmacy, and a physician practice management company. Another enforcement priority was unlawful kickbacks paid or received by health care providers. In FY 2022, pharmaceutical company Biogen Inc. paid $843.8 million to resolve allegations that it offered and paid kickbacks to physicians that spoke at or attended Biogen speaker programs in connection with Biogen’s multiple sclerosis drugs.
DOJ’s recent focus on fraud within the Medicare Advantage program (Medicare Part C) may also be reflected in recoveries in future years. DOJ’s announcement noted that it had intervened during this time period in one case against Cigna Corp. and it continues to litigate other cases involving allegations of fraud in the Medicare Advantage program.
Department of Defense (DOD) recoveries of $103.6 million in 2022 represented a small reduction in the amount recovered in FCA matters involving the DOD from the $120.3 million in such recoveries in 2021. Notable settlements in this area in FY 2022 included the $35.2 million settlement with Balfour Beatty Communities in connection with allegations of fraud in military housing management and maintenance services. Kellogg Brown & Root Services, Inc. also paid $13.67 million to resolve allegations of bid rigging and kickbacks in connection with its logistics support contract (LOGCAP) with the US Army under Operation Iraqi Freedom.
DOJ’s announcement also highlighted its pursuit of COVID-19-related fraud efforts, including cases involving improper payments under the Paycheck Protection Program (PPP). DOJ resolved 35 FCA cases in this area and obtained its first FCA settlement with a bank that allegedly made a PPP loan to an ineligible customer in 2022.
In another first-ever settlement, DOJ noted that the Civil Cyber-Fraud Initiative entered into its first settlement with Comprehensive Health Services (CHS) in FY 2022 to resolve allegations that CHS falsely represented to the State Department and to the Air Force that it had complied with contract requirements relating to the provision of medical services at State Department and Air Force facilities in Iraq and Afghanistan. Among these allegations were that CHS put copies of patients’ medical records on an internal, unsecured, network drive instead of storing them on a secure system.
DOJ’s announcement also underscored its commitment to using the FCA to hold individuals accountable for fraudulent conduct. DOJ referenced multiple settlements with individuals, including with doctors based on allegations of false claims for procedures and tests never performed and psychiatric services that were not provided.
Make Way for Criminal Litigation
United States ex rel. DiBenedetto v. Valley View Drugs, Case No. 2:16-CV-05504-CAS, 2023 WL 219313 (C.D. Cal. Jan. 13, 2023)
A federal court granted relator Linda DiBenedetto’s motion to stay her civil FCA proceeding against pharmacy defendants facing a parallel criminal action. In her qui tam suit, DiBenedetto alleges that defendant David Michael Jensen and his pharmacy, Valley View Drugs, Inc. (Valley View), along with other associated entities, paid kickbacks to physicians for prescribing drugs from certain pharmacies, including Valley View, and then sought government reimbursement for the illegally-prescribed drugs, defrauding the government of at least $20 million.
A month before the relator filed her case, a grand jury returned an indictment against Jensen, along with a group of physicians, for the same alleged kickback scheme. Six years later, the relator filed a motion to stay the case pending judgment in the parallel criminal proceedings.
The district court held that all factors weighed in favor of granting the stay. The court reasoned that because “final judgement in the criminal proceedings would estop the civil defendants from denying the essential elements” of the FCA claim under 31 USC. § 3730, any prosecution of the civil action by the relator would impose unnecessary litigation costs. Specifically, the court concluded that the interests of the defendants, the relator, third parties, and the public were aligned in the preservation of resources because the criminal proceeding could determine the essential elements of the FCA claim – saving all interested parties civil discovery costs, allowing third parties to avoid the inconvenience of a deposition, and preserving judicial resources. Additionally, the court noted that because the civil and criminal cases are based on the same underlying fraud allegations, forcing the defendants to defend the civil case would also implicate their Fifth Amendment rights.
High Fines for High Fashion
United States v. High Life LLC, Case No. 23-CV-00631 (S.D.N.Y. Jan. 25, 2023)
New York City apparel importer, High Life LLC, agreed to a $1.3 million settlement to resolve a civil FCA suit brought by the US Attorney’s Office for the Southern District of New York. The suit alleged that in 2016, High Life underreported the value of 67 apparel shipments imported into the United States in order to avoid paying the full customs duties owed.
According to High Life’s settlement with the US Attorney’s Office, High Life’s business model included purchasing apparel from foreign vendors who contracted with factories to manufacture the apparel; these vendors would then manage the importation of the apparel into the United States. In 2015, US Customs and Border Protection detained numerous High Life shipments based on concerns that the declared values of the shipments were false. As a result, High Life took control of the importation process and developed a formula to generate artificial sales prices in declaring the value of the imported apparel to reduce Customs duties owed. Specifically, in the settlement, High Life admitted that it instructed its foreign vendors to apply High Life’s formula to determine their sales prices. High Life then used these artificial sales prices to declare the value of the apparel to Customs and Border Protection, lowering the duties owed. Had High Life paid duties based on the prices it actually paid to the vendors, High Life would have paid significantly higher customs duties.
Parasitic Claim Gets Plucked
Federal Deposit Insurance Corp. v. Fifth Third Bank, N.A., Case No. 14 Civ. 6003, 2023 WL 317288 (S.D.N.Y. Jan. 19, 2023)
A federal district court granted defendant Fifth Third Bank’s motion to dismiss a qui tam relator’s claim pursuant to the public disclosure bar. In 2014, relator alleged that MB Financial (a bank later acquired by defendant) submitted false claims for payment to the FDIC related to a share-loss agreement (SLA). In 2010, the FDIC placed Broadway Bank, an FDIC-insured bank, into receivership after the bank issued a series of bad loans, leaving the bank undercapitalized. MB Financial entered into a SLA with the FDIC where the FDIC assumed 80% of future losses incurred by MB Financial on Broadway Bank’s loans and MB Financial paid 80% of future recoveries.
After review, the court dismissed relator’s allegations under the public disclosure bar. The relator’s FCA action was based on information learned from previously filed lawsuits related to Broadway Bank’s bad loans and a 2010 FDIC action filed against Broadway Bank’s directors. Using public information from these lawsuits, relator investigated other loans. The conduct described in relator’s complaint was also previously the subject of media reports and a 2012 suit filed by the FDIC against Broadway Bank seeking to recover losses from several of the loans identified in relator’s suit. The court further held that relator did not qualify for the “original source” exception to the public disclosure bar because his knowledge was acquired from various third parties.
DOJ’s Reaction to Public Disclosure Argument Halts Dismissal in Its Tracks
United States ex rel. Marcus v. BioTek Labs, LLC, No. 8:18-cv-2915 (M.D. Fla. Jan. 24, 2023)
A federal district court denied a motion to dismiss, holding that the public disclosure bar was inapplicable because DOJ, along with several states, had opposed the bar’s application. The relator alleged that BioTek Labs, BioTek Services, and two individual defendants (collectively “BioTek”) violated the Anti-Kickback Statute by providing kickbacks to medical practices in exchange for referrals to BioTek’s allergy testing and treatment services. BioTek moved to dismiss the relator’s claims under the public disclosure bar, asserting that the relator’s claims were “substantially the same” as what had been disclosed publicly in the course of a criminal investigation and on BioTek’s website. As interested parties, DOJ and several states asserted that their opposition rendered the public disclosure bar moot because the bar cannot apply when “opposed by the Government” (citing 31 USC. § 3730(e)(4)(A)). The district court agreed with DOJ’s arguments that Biotek’s public disclosure argument was largely moot. It also noted that the US Supreme Court has found that the purpose of the public disclosure bar is to “bar a subset of [false claims] . . . deemed unmeritorious or downright harmful,” and the district court concluded that relator’s claims against BioTek did not meet this standard. Additionally, the court also found that because the relator, a marketing representative for BioTek who had personal knowledge of Biotek’s suspect practices, was an “original source” for her claims, dismissal under the public disclosure bar was unwarranted. BioTek shows the dispositive effect of the government’s opposition to a defendant’s motion to dismiss based on the public disclosure bar.
