Corporate Actors Held Individually Accountable in Recent False Claims Act Settlement

by Obermayer Rebmann Maxwell & Hippel LLP
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The Department of Justice (“DOJ”) has sent a clear message that individuals cannot hide behind the corporate shield in its recent settlement with Med-Fast Pharmacy, Inc. and the charges brought against its associated individuals and entities (“Med-Fast”). Under the agreement, which includes a $2.66 million payout by Med-Fast, the DOJ dropped civil charges against the corporation but will continue to pursue criminal charges against individual actors involved in the alleged conduct in violation of the Federal False Claims Act (“FCA”).

The FCA, designed to prevent fraud against the government through incentivizing private citizens to act as whistleblowers, is a constant threat to health providers. Increasingly, the federal government has also sought to hold individuals accountable for corporate action following the release of a 2015 Memorandum from the DOJ (the “Yates Memo”). This recent settlement highlights this trend.

According to allegations brought by two whistleblowers in the Western District of Pennsylvania, Med-Fast violated the FCA by submitting claims for medications that were not eligible for coverage by federal health care programs. Specifically, the whistleblowers alleged that Med-Fast submitted claims to Medicare for medication that Med-Fast had “either recycled from long-term care facilities serviced by its institutional pharmacy, or that otherwise differed from the medications identified as part of the claims submitted to the United States.” Similarly, Med-Fast is alleged to have submitted claims to Medicare and Medicaid for diabetes testing strips in the more expensive retail packaging when cheaper mail order packaged test strips were actually supplied.

As a result of these allegations, Med-Fast and its owner agreed to pay $2.66 million to the government to resolve any potential liability. Med-Fast’s Vice President of Store Operations, the manager of Med-Fast’s institutional pharmacy, and a corporate co-defendant also involved in the alleged scheme were also charged criminally. While the manager has previously pled guilty, the VP of Store Operations faces up to five years in prison, a fine of $250,000.00, or both. The corporate co-defendant is facing up to five years of probation, a fine of $500,000.00, or both.

This case demonstrates the government’s continued commitment to hold individuals accountable for corporate actions after the issuance of the Yates Memo. As such, health care providers must ensure that they have strong compliance programs consistent with the guidance issued by the DOJ and the Department of Health and Human Services, Office of the Inspector General. Additionally, individuals must be aware that they will be held accountable for their misconduct in furtherance of a corporate scheme and should therefore be diligent in ensuring that their actions are in accordance with state and federal law.

For more information on the Yates Memo, click here.

To read the DOJ’s Press Release, click here.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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