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Health Care Fraud & Abuse Gets First Person Account

Students in the Health Care Fraud and Abuse seminar led by whistleblower attorney Bob Thomas were treated to a fascinating retrospective from a successful whistleblower, Elin Baklid-Kunz, the former employee of Halifax Hospital, which recently settled False Claims Act accusations against it for $85 million. Ms. Kunz and her attorney Marlan Wilbanks spoke to the students by telephone connection, and answered a variety of excellent questions from the students.


Having covered the most important areas of health care fraud law (the False Claims Act, the Anti-Kickback Act, the off-label/misbranding/adulteration prohibitions of the Food Drug & Cosmetic Act, and the Stark Laws) earlier in the semester, the students are being exposed in the final four weeks of the seminar to the thoughts of different participants in this dynamic field. Last week, they visited Cambridge biotech Ironwood Pharmaceuticals to hear from its chief compliance officer. Yesterday they heard from a whistleblower and her attorney (concerning a case they had studied previously in the course with respect to the Stark law). In the following two weeks, they will be hearing from two former Assistant U.S. Attorneys, who will be addressing the prosecutorial and defense perspectives.


In preparation for the class on “the whistleblower perspective,” the class read a number of articles about people who had gone through the experience, as well as a study of the collective experiences of all whistleblowers, published in the New England Journal of Medicine in December 2010. That study corroborated what most whistleblower lawyers will tell you: that the process is difficult and long, that the whistleblower must be prepared for personal and professional isolation, and that only those whose motivations are primarily principle-based (as opposed to purely monetary) will have the stomach to ride out the unpredictable turns of a False Claims Act case.


Which brings us back to Elin Baklid-Kunz. Ms. Kunz worked in finance at the Halifax Hospital in Florida. She noticed that neurosurgeons and oncologists at the hospital were being accused of conducting unnecessary medical procedures and that their compensation packages were heavily weighted towards a bonus based on number of patient referrals brought in, a highly circumspect arrangement under the Stark law. Her attempts to ascertain the legitimacy of these arrangements were not well-received, particularly by the doctors themselves, some of whom were earning close to $2 million per year. An in-house attorney at Halifax seemed to substantiate her claim, however, drafting a legal memo concluding that the Hospital was in fact violating the Stark law and that the physician bonuses could be legally challenged by the government. Discovery would later reveal that the hospital sought a second opinion (from the firm that ultimately tried unsuccessfully to defend it in court), which said that the arrangement did not violate Stark. The judge presiding over the case ruled that the hospital improperly withheld the first legal memo from the government in discovery, under the “crime-fraud exception” to the attorney-client privilege, making the opinion discoverable and presumptively admissible at trial. Needless to say, the hospital had little wiggle room at that point, and eventually cuts its losses by settling the case for $85 million (plus the tens of millions it paid its law firm, the same law firm that had issued the questionable second opinion).


Ms. Kunz reflected on the ultimate take-away from the case and her experience. She noted that when the settlement was announced internally at the company, there was great applause because the amount of the settlement was much lower than expected. None of the company management has been forced to resign or face litigation or indictment; indeed, several have been promoted and been given raises and kept their lucrative pension plans. Most disappointing, she said, is that the culture of the hospital seems not to have changed, based on what she hears from her former colleagues.


One particularly interesting side note to all of this. Ms. Kunz, who is originally from Norway, reported that her Norwegian friends, who learned of the case through media reports in that country, were astounded by two things in particular: 1) that there was such a huge discrepancy in compensation for certain types of doctors over others, related to how much business they brought in, which was quite different from how doctors are paid in Norway and elsewhere in Europe, and 2) that a whistleblower who turned out to be right would be subject to retaliation. In Norway, she was told, the emphasis would be on fixing the problem, and thus the whistleblower would be appreciated for having alerted the company to what needed to be fixed.


Equity and integrity. Not unreasonable principles from which to ground a medical practice.

Life Care Seeks Sixth Circuit Review of Sampling Decision

We recently wrote about a federal district court decision allowing the government to use statistical sampling to prove liability in a False Claims Act case pending against Life Care Centers of America, Inc.  The government’s case stems from two whistleblower suits accusing Life Care of providing uncovered, unskilled, and medically unnecessary services. Life Care has more than 200 locations in about 30 states and much of its revenue comes from Medicare patients.


Life Care has asked the federal district court judge who issued the decision to certify his decision for an interlocutory appeal to the United States Court of Appeals for the Sixth Circuit before the case is tried in the district court.  In that decision, Judge Mattice ruled that 400 specific admissions involving roughly 1,700 claims could be extrapolated to roughly 55,000 admissions involving almost 155,000 claims. In essence, Life Care is hoping to require the government to separately prove the falsity of each of the 155,000 claims, an almost insurmountable burden.  In its motion, Life Care argues that the issue is novel and thus the Sixth Circuit should consider whether extrapolation can satisfy the government’s burden of proof under the FCA and whether constitutional due process rights would be violated if Life Care could not mount a claim-by-claim defense.


The Department of Justice opposed the motion for an interlocutory appeal, arguing among other things that the district court was following decades of precedent establishing the use of statistical sampling in a variety of types of litigation and thus there is no basis justifying Sixth Circuit review of the district court decision’s decision before trial.  “Although the court stated in its order that the use of sampling and extrapolation may have been one of first impression as applied specifically to the FCA, the court nonetheless emphasized that the use of sampling and extrapolation in litigation is hardly novel, and, in fact, is well established,” the government said.


We do not expect the federal district court judge to certify his well-reasoned and thorough decision for interlocutory appeal. Instead, Life Care will have to proceed through discovery, try to challenge the validity and reliability of the statistical sample and supporting expert testimony in the district court, and hope that it can make inroads to limit or exclude the extrapolation.  If done right, the extrapolation should withstand attack and not only help prove liability but also lay the foundation for a massive damages award if the judge or the jury finds Life Care liable of violating the False Claims Act.

Our Notable Results

[learn_more caption=”United States et al. ex rel. Westmoreland v. Amgen, Inc., et al., Civil Action No. 06-10972-WGY (D. Mass.) (agreement in principle for settlement pending)” state=”close”]

In this whistleblower case filed against Amgen, Inc,, the world’s largest biotechnology company, and others in federal district court in Boston in 2006, Kassie Westmoreland, a former Amgen sales representative and product manager, alleged that the defendants violated the False Claims Act and the federal Medicare and Medicaid AntiKickback Act in their marketing and promotion of Amgen’s anti anemia drug Aranesp, including by encouraging doctors to bill Medicare and Medicaid for the “overfill’ or free drug contained in single-dose vials of Aranesp.

The case was unsealed in 2009, and several states intervened in the case; the Untied States indicated it was not intervening at that time but was continuing its civil and criminal investigation of the company. After over two years of litigation resulting in four published federal court opinions, the case was scheduled to go to trial in the United States District Court in Boston on October 17, 2011.

On October 24, 2011 Amgen announced that it had set aside $780 million and had reached an agreement in principle to settle criminal and civil investigations that had been under way for several years by the United States and the states and would resolve pending whistleblower lawsuits.


[learn_more caption=”United State ex rel. SF United Partners, et al. v. WellCare Health Plans, Inc., et al., Case No. 3:07cv1688 (SRU) (D. Conn.) (criminal and civil settlement 2011 and 2009)” state=”close”]


This whistleblower case was brought against WellCare, a leading health management organization that provides or arranges for the provision of managed care services under government-sponsored healthcare programs. It operates a variety of Medicaid and Medicare plans, including prescription drug plans, pursuant to contracts with the federal and state governments.

The whistleblower complaint alleged that WellCare knowingly violated the law, its contracts, several provisions of the Federal and comparable State False Claims Acts, and the Medicare and Medicaid AntiKickback Act by, among other things: overstating its expenses in delivering health care and underreporting its profit margin and Medical Loss Ratio; manipulating its Incurred But Not Reported (IBNR) (an actuarial estimate of claims which have not yet been reported or paid, but are likely to be incurred within a certain time frame), upcoding services, claims, and disease states by manipulating the Risk Adjusted Payment System (RAPS), which is used by CMS to calculate the per member per month (PMPM) premium paid to health plans such as WellCare; offering and paying illegal remuneration and kickbacks to participating physicians; operating a sham Special Investigations Unit (SIU) that failed to perform its oversight responsibilities with respect to claims submitted to Medicare and Medicaid by providers and third party administrators, and claims associated with its Medicare Part D Prescription Drug Plan; and engaging in sales and marketing abuses.

In April 2011 the United States, nine states, WellCare, and several whistleblowers reached an agreement to resolve WellCare’s civil liabilities under the False Claims Act for $137.5 million.

As part of that settlement, WellCare also entered into a Corporate Integrity Agreement with the HHS Office of the Inspector General. WellCare had previously resolved its criminal liabilities by agreeing to pay $80 million as part of a Deferred Prosecution Agreement with the United States in May 2009, and at that time also resolved its potential liabilities to the SEC by entering into a consent judgment and agreeing to pay a civil penalty of $10 million.


[learn_more caption=”United States, et al. v. Elan Corporation, PLC, and Eisai Inc., Civil Action No.  04-11594-RWZ (D. Mass.) (criminal and civil settlement 2010)” state=”close”]

This whistleblower case filed in 2004 involved allegations of improper “off-label” marketing and billing of the anti-seizure drug Zonegran, first by Irish pharmaceutical manufacturer Elan Corp., then later by Japanese pharmaceutical company Eisai, Inc., which bought the rights to the drug from Elan in 2004.

In a settlement announced by the Department of Justice and several state Attorneys General in December 2010, Elan Corp. agreed to plead guilty to introducing misbranded drugs into interstate commerce, in violation of the federal Food Drug and Cosmetic Act, and pay criminal fines and forfeitures of just over $100 million.  Elan also paid $102,890,517 plus interest, in civil damages for violations of the False Claims Act resulting from improper billings to federal and state health insurance programs such as Medicare and Medicaid.  The Elan criminal and civil settlements combined exceeded $203 million.  Elan also entered into a Corporate Integrity Agreement with the HHS OIG.

In addition, Eisai Inc. separately agreed to pay $11 million in civil damages under the False Claims Act to the federal and state governments for the period of time the off-label marketing continued after it acquired the rights to the drug.

The whistleblower’s complaint alleged that the defendant companies marketed Zonegran, which was approved only for reducing seizures, for weight loss and mood stabilization as well.  The drug was not and is not approved for either of those uses.  The increase in drug prescriptions resulting from this off-label marketing not only caused improper billings to the federal and state governments, but it also undercut the authority of the U.S. Food and Drug Administration, which determines the safety and efficacy of drug products and approves (and limits) their uses.


[learn_more caption=”United States ex rel Gobble, et al. v. Forest Laboratories, Civil Action No. 03-10395-NMG (D. Mass.) (criminal and civil settlement 2010)” state=”close”]

In this case, the whistleblower alleged that Forest Pharmaceuticals, Inc., a subsidiary of New York City-based Forest Laboratories, Inc., and Forest Laboratories violated federal and state False Claims Acts by engaging in off label marketing of the anti-depressant drugs Celexa and Lexapro, and kickbacks to physicians, that resulted in illegal billings to federal health care programs.

After a lengthy federal investigation, Forest reached an agreement with the Department of Justice and several state Attorneys General to resolve its criminal and civil liabilities. Under the agreement, Forest Pharmaceuticals, Inc pled guilty, paid a criminal fine of $150 million, and forfeited an additional $14 million in assets.for charges relating to obstruction of justice, , the illegal promotion of Celexa, an anti-depressant drug for use in treating children and adolescents, and the distribution of Levothroid, an unapproved new drug used to treat hypothyroidism. The companies also agreed to pay over $149 million to resolve allegations under the False Claims Act, including a civil complaint filed by the United States in February 2009 as part of its intervention in the whistleblower’s case. that Forest caused false claims to be submitted to federal health care programs for the drugs Celexa,  Lexapro, and Levothroid, .

In total, Forest agreed to pay more than $313 million to resolve its criminal and civil liability arising from these matters. It also entered into a Corporate Integrity Agreement with the HHS OIG.

The whistleblower also alleged that Forest had illegally retaliated against him by firing him after he raised questions about Forest’s illegal behavior. The court ruled that his claim could proceed. See  United States ex rel. Gobble et al. v. Forest Labs, et al., 729 F.Supp.2d 446 (D. Mass. 2010).

Mr. Thomas and Ms. Durrell were co-counsel in this case with attorneys Marlan Wilbanks and Ty Bridges of Wilbanks & Bridges, LLP.


[learn_more caption=”United States, et al. Collins v. Pfizer Inc., Civil Action No. 04-11780-DPW (D. Mass.) (criminal and civil settlement 2009)” state=”close”]

Pfizer Inc. paid approximately $2.3 billion dollars to settle claims that, among other things, the company misbranded one of its pain killer drugs, promoted the off label use of numerous drugs, and paid kickbacks to doctors to induce or reward the prescription of Pfizer drugs.  As part of the settlement, Pfizer subsidiary Pharmacia & Upjohn Company, Inc. (“Pharmacia”) entered a guilty plea to a federal criminal indictment charging that the company “misbranded” the painkiller Bextra (valdecoxib) by promoting the drug for variety of conditions and at dosages other than those for which its use was approved by the Food and Drug Administration.  Bextra was withdrawn from the market in 2005 after concerns about its safety profile, especially for cardiovascular risks, in long term users of the drug.

Mr. Thomas and Ms. Durrell represented one of the whistleblowers whose claims were settled as part of this record breaking agreement. Their client’s case alleged  nationwide misconduct in which Pfizer paid illegal remuneration for speaker programs, mentorships, preceptorships, so-called “journal clubs”, and gifts (including entertainment, cash, travel and meals) to health care professionals to induce them to promote and prescribe several drugs, including Lipitor, Norvasc, Viagra, Zithromax, and Zyrtec, in violation of the Medicare and Medicaid Anti-Kickback Act and the False Claims Act. He also alleged that Pfizer had retaliated against him.

A number of other such suits were filed by other whistleblowers.  The government was able to substantiate allegations made in a number of the law suits and Pfizer agreed to pay a record-breaking criminal recovery of $1.3 billion dollars in addition to $1 billion to settle the civil cases alleging that the company caused the submission of false claims to the federal and states’ governments. Pfizer also entered into a Corporate Integrity Agreement with the HHS OIG.
United States and Commonwealth of Massachusetts ex rel. Johnston v. Aggregate Industries, PLC, et al., Civil Action No. 06-11379-GAO (D. Mass.) (criminal and civil settlements 2007 and 2008) (a/k/a the “Big Dig” settlements)
This whistleblower suit alleged wrongdoing in connection with the $14.6 billion reconstruction of downtown Boston’s roadways, tunnels, and bridges known as the “Big Dig”.  Among other things, he alleged that defendant Aggregate Industries supplied out -of-specification or non-conforming concrete to the Big Dig and that defendants Aggregate, Bechtel, and parsons Brinckerhoff failed to properly oversee the construction and as a result false or fraudulent claims for payment were submitted to the government and paid. His claims (and those of other whistleblowers) were settled as part of the settlements between the federal and state government and the defendants in 2007 and 2008.

In the 2007 settlement, defendant Aggregate Industries Northeast Region, Inc. F/K/A Bardon Trimount and Aggregate Industries, Inc. (“Aggregate”) paid over $42 million to resolve a criminal and civil investigation into Aggregate supplying 5,700 loads of out-of-specification or non-conforming “10-9” concrete to the Big Dig.  As part of this Big Dig concrete settlement, Aggregate Industries Northeast Region pled guilty to criminal charges that it conspired to submit false or fraudulent claims to the Government for that concrete and paid a criminal fine.  Aggregate also settled the Government’s civil claims, initiated by whistleblowers, by paying over $15.5 million to the Government under the federal and state False Claims Acts.  Aggregate  also agreed to contribute over $27 million to a fund to be used for future repairs on the Big Dig and Aggregate entered into a Compliance Agreement with the federal Department of Transportation.

In the 2008  settlement,  defendants Bechtel and Parsons Brinckerhoff, the management consultants to the Big Dig,  agreed to pay over $400 million to resolve their civil and criminal liabilities in connection with the “Big Dig” project, including, among others, liability stemming from their failure to institute concrete testing protocols at the construction site as well as in the materials lab to determine that all concrete delivered to the Big Dig by Aggregate met specifications and was placed pursuant to procedures.


[learn_more caption=”United States ex rel. Donigian v, St. Jude Medical Center, Civil Action No. 06-11166-DPW (D. Mass.) (civil settlement 2010)” state=”close”]


This False Claims Act qui tam suit filed in 2006 was resolved by St. Jude Medical Inc. of St. Paul, Minn., agreeing to pay the United States $16 million to resolve allegations raised by the whistleblower that the company used post-market studies and a registry to pay kickbacks to induce physicians to implant the company’s pacemakers and defibrillators.

Post-market studies are intended to assess the clinical performance of a medical device or drug after that device or drug has been approved by the Food and Drug Administration.   Registries are collections of data maintained by a device manufacturer concerning its products that have been sold and implanted in patients. St. Jude used three post-market studies and a device registry as vehicles to pay participating physicians kickbacks to induce them to implant St. Jude pacemakers and defibrillators.  Although St. Jude collected data and information from participating physicians, it is alleged that the company knowingly and intentionally used the studies and registry as a means of increasing its device sales by paying certain physicians to select St. Jude pacemakers and implantable cardioverter defibrillator for their patients. In each case, St. Jude paid each participating physician a fee that ranged up to $2,000 per patient.  St. Jude solicited physicians for the studies in order to retain their business and/or convert their business from a competitor’s product.

Mr. Thomas and Ms. Durrell were co-counsel in this case with attorneys Ken Nolan and Marcella Auerbach of Nolan & Auerbach, P.A.


[learn_more caption=”United States and the Commonwealth of Massachusetts et al. v. East Boston Neighborhood Health Center Corp, et al.,  Civil Action No. 03-12360-MLW (D. Mass.) (civil settlement 2008)” state=”close”]

In this False Claims Act qui tam case filed in 2003, the whistleblower alleged that Boston Medical Center (BMC) and its community health center, East Boston Neighborhood Health Center (EBNHC) submitted inappropriate charges to the Massachusetts Uncompensated Care Pool for emergency services performed at the health center. The Massachusetts Uncompensated Care Pool, now known as the Health Safety Net Trust Fund, and commonly referred to as the “Free Care Pool”, provides reimbursement to acute care hospitals and community health centers for medically necessary services provided to low-income, uninsured and underinsured residents of Massachusetts.  The Free Care Pool is funded in part by the federal and state governments.

The United States Attorney’s Office and the Massachusetts Attorney General’s Office investigated the whistleblower’s allegations and a civil settlement agreement was reached in 2008. Under the terms of the agreement, BMC and EBNHC paid $600,000.  Boston Medical Center and East Boston Neighborhood Health Center also agreed to enter into discussions with the Massachusetts Department of Public Health regarding the standards for operation in the Urgent Care Department of EBNHC.

The whistleblower alleged that East Boston Neighborhood Health Center and Boston Medical Center overcharged the government for services provided to patients seen in the Urgent Care Department of EBNHC.  The alleged overcharges submitted to the Free Care Pool were designed to compensate healthcare providers that are usually not open after 10:00 p.m., on Sundays, holidays, or for emergencies.  However, the Urgent Care Department was open for urgent care and emergencies 24 hours a day, 7 days a week.  By submitting these charges, authorities alleged that EBNHC increased its overall reimbursement from the Uncompensated Care Pool during the fiscal years of 2003 to 2006.


[learn_more caption=”United States ex rel. Garcia, et al. v. Serono, Inc., C.A. No. 03-CV-11892 (D. Mass) (criminal and civil settlement 2005)” state=”close”]

In this case, Mr. Thomas represented a whistleblower who filed a successful False Claims Act qui tam complaint against Serono, Inc., the Swiss manufacturer of the AIDS treatment drug Serostim. In a then record settlement reached with the Department of Justice and several state Attorneys General, Serono agreed to pay $704 million and plead guilty to scheming to boost sagging sales by, among other things, offering kickbacks to doctors to write prescriptions.

As part of the plea, Serono Laboratories was barred from participating in federal health programs for five years, paid a criminal fine of $136.9 million, and paid $567 million to resolve its civil liabilities under the False Claims Act. Serono also entered into a Corporate Integrity Agreement with the HHS OIG.

Serostim, which contains the human growth hormone Somatropin, was approved by the Food and Drug Administration in 1996 to treat AIDS wasting, an often-fatal condition involving severe weight loss. At about the time the FDA approved the drug, protease inhibitor drugs came on the market. Those drugs, when used in combinations or “cocktails,” sharply curtailed the AIDS virus in patients, making them less prone to AIDS wasting. Serono offered doctors free trips to the south of France in return for agreeing to write up to 30 new prescriptions for Serostim, which cost $21,000 for a 12-week treatment regimen. The company also conspired to introduce a new test for AIDS wasting, despite not having FDA approval. The test diagnosed AIDS wasting even in the absence of weight loss, with the United States estimating that 85 percent of the resulting Serostim prescriptions were unnecessary.


[learn_more caption=”United States and the Commonwealth of Massachusetts et al. v. Tushar C. Patel, M.D. d/b/a HCI/Metromedic Health Center and Fall River Walk-In Emergency Medical Office, P.C., Civil Action No.  03-11828-MLW (D. Mass.) (civil settlement 2005)” state=”close”]

In this False Claims Act qui tam case, the whistleblower alleged that defendants were billing and causing the billing of federal and state government health insurance programs for false and fraudulent claims generated by the Defendants’ clinics and medical offices.  These false and fraudulent claims involved “upcoding” on government insurance claim forms, the ordering of medically unnecessary tests, and submission of claims with materially false information concerning the identity of the patients’ doctor(s), whether the medical visit in question had occurred at all, and the true nature and extent of the patient’s visit in those instances when the patient had been in one of the defendants’ clinics.
Defendant Fall River Walk-In Emergency Medical Office (“FRWI”) was indicted on December 7, 2004 by a Bristol County grand jury on one count each of violation of the Medicaid False Claims Act and larceny over $250.  The indictments alleged that from May 2000 through May 2003, the corporation systematically defrauded the Medicaid program of $85,650 by filing 6,346 claims for physical therapy services performed by chiropractors for hundreds of patients.
In June 2005, the defendants reached a civil settlement agreement with the government, under which the defendants paid $315,000 to resolve the allegations raised in the whistleblower’s complaint. In addition, defendant FRWI entered into a plea agreement with the Commonwealth of Massachusetts and agreed to pay $85,000 in restitution to the Medicaid program.