Designed for busy in-house counsel and compliance professionals, this newsletter seeks to bring you up to speed on key federal and state False Claims Act (FCA) developments, with links to primary resources. Each quarter, we will provide key takeaways and discuss some of the most significant false claims topics.

In this second newsletter of 2024, we ask: what are we to make of the Department of Justice (DOJ or Department) stats for False Claims activity and its announcement on FCA priorities, should the CEO of a New Jersey laboratory have sabotaged a competitor at the same time he is paying kickbacks for referring patients for unnecessary laboratory testing, and why would a government contractor hired to watch over a decommissioned nuclear site for fires encourage its employees to falsify time so they could take naps and watch movies and television? The answers to this quarter’s questions and a discussion of these cases and two additional state settlements are here in our April 2024 FCA Update.

Federal

DOJ Releases FY23 FCA Statistics. On February 22, 2024, DOJ announced its FCA statistics for fiscal year (FY) 2023, reaching the highest number of settlements and judgments in FCA history. While healthcare continues to lead most FCA activity, including DOJ’s focus on fraud in pandemic relief programs, FY 2023 saw remarkably expanded DOJ and whistleblower activity on contracts involving the Department of Defense (DoD). At 543 settlements and judgments, the DOJ’s end-of-year total marks a 50% increase from the 351 that it obtained in FY 2022. DOJ collected more than $2.68 billion in settlements and judgments, an increase from the $2.2 billion recovered in the previous year. Over $1.8 billion came from the healthcare industry alone.

DOJ also initiated the highest number of new FCA matters in its history. At 500 new matters brought in by DOJ investigations, DOJ’s FY 2023 performance marks a more than 60% increase in DOJ-initiated matters from last year (305). In addition, whistleblowers filed 712 qui tam suits, the third-highest total in history, and were paid over $349 million for their share of recoveries in FY 2023. Our February 26, 2024 client alert contains more detailed information on these statistics.

DOJ Announces FCA Enforcement Priorities – Highlighting Possible Exposure for Investors. On the same day that the Department released its FY23 FCA statistics, Principal Deputy Assistant Attorney General Brian M. Boynton addressed the 2024 Federal Bar Association’s Qui Tam Conference and announced DOJ’s enforcement priorities for the next year: the Civil Cyber-Fraud Initiative, pandemic fraud, healthcare fraud, the Nursing Home Initiative, and the Medicare Advantage Program. None of these areas is a surprise; they have all been past areas of focus by DOJ. What is a surprise, however, is PDAAG Boynton’s decision to also include a new priority that he spent some time talking about: the Department’s commitment to holding accountable third parties that cause the submission of false claims, including private equity (PE) or venture capital (VC) firms. With increased investments in the healthcare industry by PE and VC firms, he explained, “[t]hese entities may influence patient care by providing express direction for how a provider should conduct their business, or more indirectly by providing revenue targets or other indirect benchmarks intended to prioritize reimbursement. As with electronic health record vendors or coding consultants, if an investor knowingly engages in conduct that causes the submission of false claims, they may subject themselves to liability.” Boynton noted they already have a few cases involving PE firms, and we have seen firsthand the Department’s new interest in this area. PE and VC firms that invest in the healthcare industry should be mindful of how heavily regulated this industry is and ensure proper compliance mechanisms are in place, especially when firms have members on the board of directors.

Laboratory Settles $13 Million Kickback Case and Cooperates in Criminal Investigation for Allegedly Sabotaging Competitor. On January 10, 2024, RDx Bioscience Inc. and its former CEO Eric Leykin agreed to pay $13.25 million to the United States and New Jersey to resolve allegations that they helped orchestrate illegal kickbacks for referring patients for unnecessary laboratory testing. The kickbacks included: commissions based on the volume and value of referrals; paid management services fees disguised as investment returns; paid providers consulting or medical director fees intended to induce referrals; paid kickbacks to substance abuse recovery centers in return for referrals; and paid specimen collection fees to the staff members of referring healthcare providers to induce those providers to order RDx laboratory testing. The Department also highlighted the fact that RDx and Leykin agreed to cooperate with their ongoing investigation.

Leykin was previously indicted in May 2023 for wire fraud for sabotaging a competitor, and the agreement to cooperate is expected to cover these allegations as well. The New Jersey indictment alleges that on June 30, 2022, Leykin called an employee of a competing clinical company posing as a technician with a vendor the business used to service its laboratory equipment, and arranged to service the laboratory equipment. Leykin allegedly went to the business on July 1, 2022, posing as a vendor technician, and proceeded to destroy a significant amount of the business’ laboratory and computer equipment and to steal multiple computer hard drives.

Government Contractor Hired to Watch for Fires at Decommissioned Nuclear Site Asleep at the Switch. On January 24, 2024, DOJ filed a complaint alleging that Hanford Mission Integration Solutions failed to properly schedule work for its fire protection employees at the decommissioned Department of Energy Hanford nuclear site. By failing to do so, it left the employees with free time in which they took naps, watched movies and television, and engaged in other personal activity. The complaint further alleged that management encouraged personnel to falsely file the time, allegedly giving them instructions on how to log it as work under the contract. The Hanford nuclear site produced nuclear plutonium during World War II and the Cold War and now holds 54 million gallons of radioactive and hazardous waste.

State

California & U.S. Settle Medi-Cal Drug-Pricing Case with Pomona Valley Hospital. On February 5, 2024, the California Attorney General and DOJ announced a $2.1 million settlement with the Pomona Valley Hospital Medical Center (PVH), resolving allegations that the hospital overbilled Medi-Cal for prescription medications purchased through a federal pricing program. The state and federal governments alleged that the PVH had charged Medi-Cal a higher price for drugs it had purchased through the federal 340B Drug Pricing Program, which requires participating drug manufacturers to provide discounted drug prices to healthcare organizations serving low-income patients. In filing reimbursements with Medi-Cal for drug purchase costs, PVH claimed the “usual and customary” rate of the drugs it had purchased, instead of the “actual acquisition cost” of the purchased drugs, as required by California state law. The California law, which went into effect in 2016, requires that providers submitting claims to Medi-Cal use the “actual acquisition costs” of drugs purchased under the 340B program, which is lower than other pricing rates, in order to curb the amount of government dollars spent on reimbursements. In 2021, PVH voluntarily self-disclosed to the Department of Health and Human Services that it had charged a price that was significantly higher than the “actual acquisition cost” to Medi-Cal. In reaching the $2.1 million sum, the state and federal governments noted that PVH had overcharged Medi-Cal by $1.4 million, but that the hospital had “cooperated fully with the Governments’ investigation,” which mitigated against the application of higher damages available under state and federal false claims statutes. Under the settlement, California received $1,225,954 and the U.S. received $873,730.

New York Secures $8.6 Million Settlement with Nursing Home. On March 4, 2024, the New York attorney general announced an $8.6 million settlement with Fulton Commons Care Center (FCCC), a Nassau County nursing home, for alleged resident neglect, abuse, and mistreatment, and for Medicare and Medicaid fraud. The state investigation revealed that less than half of Medicare and Medicaid funding received by FCCC for resident care actually reached nursing home residents; instead, an estimated $34 million allegedly went towards inflated rent payments to Fulton Realty A, a part of the Fulton Commons entities, without proper disclosure or approval by the state’s Department of Health. FCCC also allegedly paid more than $1 million in fraudulent salaries to family members related to the principal owner of the company from government dollars. The state settlement requires FCCC’s owners to pay $7 million to a Resident Care Fund and $1.6 million in restitution to Medicare and Medicaid. The settlement also requires FCCC to implement significant compliance programs, like appointing an Independent Healthcare Monitor, an Independent Financial Monitor, and a Chief Compliance Officer.

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