Retina Institute Settles with Government for $6.65 Million Over Allegations of False Claims Act Violations

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On October 2, 2019, Retina Institute of California Medical Group (RIC), along with its former CEO and several physicians, agreed to pay $6.65 million to resolve allegations of False Claims Act violations. RIC is a medical partnership of ophthalmologists with multiple locations in California. The medical group was alleged to have defrauded government health care programs by billing for unnecessary exams, improperly waiving Medicare copayments, and other regulatory violations. Eric Young, managing partner of McEldrew Young’s whistleblower practice, worked on the case with attorneys from the law firm of Berger Montague.

The case, United States ex rel. Smith and Rogers v. Chang, No. 13-CV-3772-DMG (C.D. Cal.), was filed in May 2013. The complaint was unsealed in July 2016 after the government elected not to intervene in the case. The two Relators were both former employees of RIC who provided substantial documentation to support allegations in the complaint. Bobette Smith was the CEO of the practice group from June 2012 to January 2013, and Susan Rogers worked as the manager of the billing department over the same six month period. The allegations in the complaint were based on information discovered by the Relators during the course of their employment, as well as their personal observations and investigation into what they believed to be fraud against the federal government and the State of California.

Routine Waiver of Medicare Deductibles and Copayments Can Result in False Claims Act Violations

Medical service providers are required to collect copayments and deductibles from all Medicare beneficiaries, except in specific cases of financial hardship. Any incentive that generates improper referrals, particularly where a medical service provider offers free or discounted items or services to Medicare beneficiaries, or promotes overutilization of medical services can constitute the submission of false claims to the federal government. Thus, a service provider that routinely waives cost-sharing amounts for Medicare beneficiaries, but bills Medicare for the full allowable amount, can be face substantial penalties under the False Claims Act.

The Office of Inspector General for the Department of Health and Human Services set forth detailed guidance on this issue back in 1994:

“Routine waiver of deductibles and copayments by charge-based providers, practitioners or suppliers is unlawful because it results in (1) false claims, (2) violations of the anti-kickback statute, and (3) excessive utilization of items and services paid for by Medicare.

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A provider, practitioner or supplier who routinely waives Medicare copayments or deductibles is misstating its actual charge. For example, if a supplier claims that its charge for a piece of equipment is $100, but routinely waives the copayment, the actual charge is $80. Medicare should be paying 80 percent of $80 (or $64), rather than 80 percent of $100 (or $80). As a result of the supplier’s misrepresentation, the Medicare program is paying $16 more than it should for this item.

In certain cases, a provider, practitioner or supplier who routinely waives Medicare copayments or deductibles also could be held liable under the Medicare and Medicaid anti-kickback statute . . . When providers, practitioners or suppliers forgive financial obligations for reasons other than genuine financial hardship of the particular patient, they may be unlawfully inducing that patient to purchase items or services from them.

One important exception to the prohibition against waiving copayments and deductibles is that providers, practitioners or suppliers may forgive the copayment in consideration of a particular patient’s financial hardship. This hardship exception, however, must not be used routinely; it should be used occasionally to address the special financial needs of a particular patient. Except in such special cases, a good faith effort to collect deductibles and copayments must be made. Otherwise, claims submitted to Medicare may violate the statutes discussed above and other provisions of the law.”

Retina Institute’s Alleged Systematic Waiver of Medicare Copayments and Deductibles

According the allegations in the complaint, the defendants attempted to induce referrals by routinely waiving Medicare copayments and deductibles for patients without properly investigating or documenting their financial status. In order to disguise the practice, the defendants sometimes allegedly had patients complete a financial hardship form; however, most deductible and copayment waivers were allegedly granted without the completed form. On those limited occasions when the form was used, patients often signed the forms, allegedly without providing any information regarding their financial status.

A ophthalmologist who maintained a general practice near one of RIC’s locations allegedly told an RIC ophthalmologist he expected that copays for Medicare patients to be waived, and that he would not refer patients if copays were not waived. The Relators had records which identified the patients who were referred to RIC by this particular ophthalmologist. The documents showed the receipts for those patients amounted to only 80% of the Medicare allowable amount. Without consideration of financial hardship or any documents to verify such designations, the copayments for these patients were allegedly waived as a matter of course.

Relators independently investigated several patients whose records indicated a financial hardship waiver. They discovered that some of those patients lived in expensive homes, including one residence valued in the millions of dollars.

The Relators each separately explained to Dr. Tom Chang, one of RIC’s physician/owners, that the policy and practice of routinely waiving Medicare copays and deductibles did not comply with Medicare regulations. Dr. Chang allegedly responded, on more than one occasion, that he would prefer to continue using the financial hardship waivers to ensure that RCI did not lose any referrals or patients. Dr. Chang allegedly said he would simply pay the fines if Medicare ever learned about the practice. In light of his former position as a Medicare compliance officer for the Department of Ophthalmology at the University of Southern California School of Medicine, Dr. Chang’s alleged comments and lack of concern are quite noteworthy.

Relator Smith made several attempts to advise RIC’s partners about changing the manner in which financial hardship cases were handled. She even made a presentation to the RIC senior management team and Executive Committee warning of the potential adverse consequences of continuing with the current practice. During the presentation, Dr. Chang allegedly repeated that he would pay the fines if Medicare ever discovered the way in which RCI handled the waivers.

The History and Purpose of the Anti-Kickback Statute

The Anti-Kickback Statute, 42 U.S.C. § 1320a-7b(b) (“AKS”), prohibits any person or entity from offering, making, soliciting, or accepting remuneration, in cash or in kind, directly or indirectly, to induce or reward any person for purchasing, ordering, or recommending or arranging for the purchasing or ordering of federally-funded medical goods or services. The statute was enacted in 1972 to address concerns that remuneration provided to those who influence health care decisions would result in services that were medically unnecessary, of poor quality, or harmful to a vulnerable patient population. Congress therefore passed the AKS to prohibit the payment of kickbacks in any form. The statute was amended in 1977, and again in 1987, to ensure that kickbacks could not be disguised as legitimate transactions to circumvent the law.

Retina Institute’s Alleged Violations of the Anti-Kickback Statute

A physician who refers a patient for medical services to an entity in which the physician has a financial interest violates the AKS unless the referral falls within the “safe harbor” regulations.

The physician defendants named in the complaint had financial ownership interests in an ambulatory surgery center known as the San Gabriel Surgery Center. Those physician defendants, as well as other RIC physicians, routinely referred RIC patients in need of surgery to the San Gabriel Surgery Center.  Such referrals would only be covered by the safe harbor regulations if the physician’s investment interest was fully disclosed to the patient.

According to the allegations in the complaint, RIC physicians did not advise their patients that RIC principals had an investment interest in the San Gabriel Surgery Center.  Patients were allegedly given a brochure instead that stated, “The ownership for San Gabriel Ambulatory Surgery Center may be obtained by contacting the center at (626) 300 – [XXXX].”

In order to ascertain whether accurate information was disseminated, Relator Smith asked the scheduling agent at RIC to call the phone number on the brochure to learn who owned the surgery center. The scheduling agent allegedly reported to Relator Smith that the individuals who responded to the call could not provide any information about the ownership of the center nor could they find anyone who could answer the question.

The Government Relies on the Assistance of Whistleblowers

This case illustrates the important role that whistleblowers play in identifying and reporting fraud.  Due to the enormity of claims processed under government-funded health care programs, it is impossible for every instance of fraud to be detected.  Employees are often in the best position to observe fraud and gather evidence to corroborate their observations. The government depends on such individuals to come forward and report what they reasonably believe to be fraud.

The False Claims Act permits a private individual to sue on behalf of the United States and share in any recovery. The government may intervene in the action, in which case a Relator may receive a reward of 15 percent to 25 percent of any monetary recovery.  In cases such as this one, where the government declines to intervene, the whistleblower may pursue the action on their own and can receive a reward of 25 percent to 30 percent of any monetary recovery.

If you have evidence of fraud being committed against the government by an employer, business competitor or contractor, call the experienced whistleblower attorneys McEldrew Young at (215) 367-5151 for a free, no-obligation consultation.

Four Settlements for Justice Dept as Health Care Companies Seek to Avoid Coal for Christmas

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It must be the last weekend before Christmas because health care companies are looking to resolve government investigations into their wrongdoing before we leap into the new year! In the last two days, we’ve now seen four multi-million dollar settlement announcements in False Claims Act cases.

Whistleblower Lawsuit Against Education Management Over Student Loans Settles for $95.5 Million

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Education Management Corp, a for-profit college company often abbreviated as EDMC, has settled a whistleblower lawsuit brought under the False Claims Act alleging illegal recruiting practices for $95.5 million.

Health Care Whistleblower Lawsuits Bring in Another $375 Million for Government

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This has been quite a week for settlement announcements in the world of the False Claims Act. In the past two days, the Department of Justice has announced an additional $375 million in settlements initiated by whistleblower lawsuits. This follows the earlier Novartis announcement that it would pay $390 million to resolve.

Doctor to Receive $18.1 Million for Reporting Illegal Contract Offer by Hospital

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Another hospital has settled allegations of violations of the Stark Law that were brought by a whistleblower lawsuit under the False Claims Act. This time, it was Tuomey Healthcare System, which had previously lost at trial, resulting in an order to pay $277 million for violations of the law, and in its Fourth Circuit appeal. It ultimately settled the case for $72.5 million from the South Carolina hospital system, which will be sold to Palmetto Health.

In this case, the hospital entered into contractual relationships with area specialty physicians after becoming concerned that it would lose referrals of surgical procedures from them. The part-time employment agreements required them to send their cases to Tuomey and paid bonuses based in part on their referrals. The Stark Law prohibits the payment of anything of value to physicians based on their referrals of business paid for by the federal healthcare programs. One of the individuals that Tuomey offered a contract to reported them to the Department of Justice.

Many people have the mistaken impression that only an individual who works for a company can bring a whistleblower lawsuit. This is not true. Any individual that has nonpublic information sufficient to demonstrate fraud can file a lawsuit. However, insiders are typically the most likely individuals to have such information so they have gotten. Job seekers, industry experts, consultants, competitors and other individuals can also report health care fraud to the U.S. Government.

The resolution to this case came after a long legal battle, with two trials in a U.S. District Court and two appeals. The first verdict led to an order of payment of $45 million for Stark Law violations but was overturned on appeal. The second jury found Tuomey liable for additional misconduct under the False Claims Act. Tuomey began exploring a sale of the company while facing the largest potential penalty levied against a community hospital. The board and management determined a sale was its best option due to financial difficulties. Based on the discounted recovery, it seems likely that the Justice Department took these into account when reducing the fine against the community hospital.

In September, there were two other hospital settlements of cases under the False Claims Act for kickbacks in violation of the Stark Law. These two settlements totaled almost $200 million in recoveries for the United States Government.

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China’s Focus Media & CEO Get $55.6 Million SEC Fine

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China has been on the radar of U.S. businesses, investors and the SEC for some time now. And we aren’t just talking about it as a cause of the recent stock market tumble. China is the leading country for allegations of violations of the Foreign Corrupt Practices Act, and the SEC has been seeking information about Chinese companies to investigate potential accounting fraud. In light of these concerns and less advantage to being listed on a U.S. exchange, numerous Chinese companies have been delisting or entering going private transactions.

The agreement to settle an SEC investigation into Focus Media and its CEO over inaccurate disclosures to investors for $55.6 million isn’t surprising in that light, but it probably will open some eyes in China. Focus Media is a large Chinese advertising companies with displays in public locations such as elevators and outdoors. It was taken private in 2013 in a leveraged buyout.

In connection with the settlement, a SEC official in the New York office indicated that the SEC wasn’t going to let the geographic location of companies prevent them from ensuring public companies make accurate statements to investors. This is obviously aimed at sending a message to companies located outside of the United States that they can’t take advantage of the U.S. financial markets with impunity.

For whistleblower rewards, the SEC does not distinguish between the geographic location or citizenship of the source of the tip. Chinese whistleblowers can earn an award under the Dodd-Frank program the same as United States citizens.

Photo Credit. I have no idea if that is a Focus Media billboard or not, but I thought it was appropriate. Of course, I haven’t translated it.

SEC Continues Muni-Bond Fines Over Continuing Disclosure Obligations, Fining 22 More Underwriters

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Twenty-two municipal underwriting firms agreed to pay SEC penalties of between $20,000 and $500,000 for inaccurate disclosures to investors concerning the continuing disclosure obligations and compliance of municipal bond issuers. It is the second round of settlements against underwriters via the Municipalities Continuing Disclosure Cooperation (MCDC) Initiative.

The program was announced by the Securities and Exchange Commission in March 2014 and offered standardized, favorable settlements for self-reported inaccuracies in bond offerings concerning compliance with continuing disclosure obligations specified in Rule 15c2-12 of the Exchange Act. This summer, the SEC brought enforcement actions against more than 30 municipal bond underwriters for material misstatements and omissions in offering documents voluntarily self-reported pursuant to the Initiative which was only open for a limited time.

Rule 15c2-12 requires information about an issuer’s failure to materially comply with continuing disclosure commitments for the past 5 years. It also prohibits underwriters from purchasing or selling municipal securities unless the issuer has committed to continuing disclosures. The Kings Canyon Joint Unified School District in California was the first to settle under the program in July 2014 for inaccurate investor disclosures in a 2010 bond offering.

The investment banks fined in this wave of announcements included PNC Capital Markets, UBS, Fifth Third Securities and Edward D. Jones & Co., among others.

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GM Settles Criminal Investigation into Ignition Switch for $900 Million

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The Department of Justice has resolved its criminal investigation into General Motor’s conduct concerning the sale of cars with defective ignition switches and the delayed recall of those vehicles. The result is an agreement by GM to pay $900 million

GM’s $900 million penalty was 25 percent less than the fine handed out to Toyota Motors in 2014. The DOJ indicated that once the company came forward, the speed of its internal investigation and the fact that it took responsibility for its behavior allowed it to settle the case much faster than the one against Toyota. GM also paid $35 million previously to resolve violations of regulations enforced by the NHTSA requiring companies to announce recalls in a timely fashion. GM paid the maximum fine for a single violation.

GM was accused of wire-fraud and a scheme to conceal a deadly safety defect. GM failed to fix the defect at issue, which has been blamed for more than 120 deaths, over a period of more than a decade. The DOJ has not closed the door on prosecuting specific employees yet, but indicated it may be difficult to hold them responsible. GM also reached a settlement agreement with over a thousand victims of the defect.

The House has yet to act to pass legislation to address the increase in misconduct by auto manufacturers. Several bills to address auto safety issues have been introduced but there has not been much momentum on them. Earlier this year, the Senate passed a bill to authorize monetary rewards for auto whistleblowers employed by auto manufacturers, parts dealers and suppliers if the government collects monetary sanctions as a result of the information. Unlike the Dodd-Frank Act, the payment of rewards is discretionary rather than mandatory to eligible individuals.

In other automaker news, the EPA has accused Volkswagen of evading the Clean Air Act emissions standards with a defeat device. The vehicles reportedly emitted nitrogen oxide well in excess of the legal limit but detected when an emissions test was being conducted in order to hide the air pollution from federal regulators. The maximum Clean Air Act fine is $37,500 per vehicle, leading to a potential fine of as much as $18 billion if the maximum penalty were to be handed out.

To learn more about the auto whistleblower law, contact one of our whistleblower attorneys via our contact form or by calling 1-800-590-4116.

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Mead Johnson Settles FCPA Probe Over Bribery of Chinese Doctors

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Mead Johnson was fined $12 million today by the SEC for violations of the books and records provisions of the Foreign Corrupt Practices Act.

The company’s majority owned subsidiary in China improperly compensated health care providers, who were foreign officials under the law because they were employees of state-owned hospitals, to recommend its infant formula to expectant and new mothers. The payments came from distributor allowance funds which acted like an off-the-books slush fund. Ultimately, the subsidiary paid approximately $2 million to health care providers and made approximately $8 million in profits from the 2008 until 2013 time period.

The payments made by the employees of Mead Johnson China were not accurately reflected in the books and records of the Chinese subsidiary which was consolidated into the publicly reported accounting records. Moreover, the company had inadequate internal accounting controls in place to detect the improper practices.

The company received a tip about possible violations of the FCPA in 2011 regarding the conduct at issue but the company did not turn up evidence of the misconduct and did not either self-report the allegation or disclose it to the SEC when it inquired in connection with this matter.

Do you have questions about this area of the law? We have put together an informational guide for FCPA whistleblowers. If you have questions after reviewing it, one of our FCPA whistleblower attorneys will answer any remaining questions. We can assist you in reporting your evidence of bribery by a publicly traded company or other covered entity. Please contact an attorney via our contact form or call 1-800-590-4116.

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VMware settles Best Price Whistleblower Suit for $75.5 Million

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The Department of Justice has settled a False Claims Act case against VMware for $75.5 million. The lawsuit, initiated by a whistleblower, contained allegations that the company concealed its commercial pricing practices and overcharged the U.S. Government on products and services sold pursuant to the GSA Multiple Award Schedule contract entered into by VMWare and Carahsoft Technology Corporation.

The U.S. Government requires contractors to disclose the prices and discounts offered to commercial customers in order to ensure that government agencies are getting the supplier’s best price. The GSA regulations specify that prospective vendors applying for a MAS contract make After negotiation of the price(s) and establishment of the government contract, contractors must subsequently inform the government of changes to their pricing practices or discounts for commercial customers.

If they do not make accurate disclosures, the submission of claims for payment under the contracts can overcharge the federal government and violate the False Claims Act. In this case, the settlement resolved the allegations without a determination of liability.

The U.S. Government spends more than $80 billion a year on information technology currently. It is divided between civilian and defense spending, with civilian agency spending accounting for approximately $48 billion a year. With growing spending in this area, it seems like there is more False Claims Act litigation as well. Last summer, the Government intervened in another best price case brought by a whistleblower against CA Technologies.

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