This is the ninth in our 2024 Year in Preview series examining important trends in white collar law and investigations in the coming year. Our previous post, "False Claims Act Enforcement: Looking Back and What to Expect in 2024," can be found here.
The government had another busy year in 2023 investigating and prosecuting health care fraud cases on multiple fronts. Contending with the enormous health care crises of the now-concluded Covid-19 pandemic and the ongoing opioid epidemic, the government has deployed considerable resources to combat allegedly fraudulent schemes that have resulted in financial loss to the government and individual harm. Meanwhile, new technology has shifted the enforcement landscape, with the government targeting telemedicine fraud and relying ever-increasingly on data analytics to identify suspected outliers associated with potential fraud.
But the government’s most powerful tool for combating health care fraud remains, as always, the False Claims Act (FCA), where we saw an unprecedented number of investigations and settlements in 2023, as well as significant case law developments. We expect to see similar priorities and enforcement levels as we look at health care fraud enforcement in 2024.
Covid-19 Pandemic Fraud
Though some years have passed since the height of COVID-19, the government has not slowed down in bringing enforcement actions related to the pandemic. In fact, at the recent Federal Bar Association’s Qui Tam Conference on February 22, 2024, Assistant Attorney General Brian M. Boynton stated that COVID-19 fraud has been, and will continue to be, an FCA enforcement priority this year. In particular, Boynton stated that the key focus will be on fraud involving the Paycheck Protection Program (PPP), which provided loans to eligible small businesses for payroll, rent, utility payments, and other business-related costs. Corroborating these remarks, DOJ recently announced in a press release on February 22, 2024, that, among its record-breaking number of FCA settlements and judgments in 2023, DOJ has resolved approximately 270 FCA matters involving the PPP loans, amounting to nearly $48.3 million of recovery to the government. Many of these cases involved small businesses and individuals who used PPP loans in unauthorized ways, such as purchasing luxury items and sports cars.
Beyond fraud involving PPP loans, other pandemic-related fraud will likely remain an enforcement priority. In the November 2023 annual report by the Health Care Fraud and Abuse Control (HCFAC) Program, the government identified additional pandemic-related fraud schemes, including clinics offering “unnecessary services” to patients, in addition to COVID-19 tests, in exchange for the patients’ personal information that they then use to fraudulently bill federal health care programs for those unnecessary services; performing “unnecessary laboratory testing” and billing those tests along with Covid-19 tests; making false and fraudulent representations about Covid-19 testing, treatments, or cures; and fraudulently obtaining Covid-19 health care relief funds, such as by making false claims and/or submitting fraudulent applications. Similarly, the DOJ’s press release on February 22, 2024, noted such cases as key FCA settlements and judgments in the last fiscal year. The government has not concluded its enforcement work arising from the pandemic and alleged fraud associated with it, and we expect to see robust COVID-19-related enforcement in 2024 as the dust settles after an unprecedented public health crisis.
Opioid Enforcement
Opioid enforcement continues to be a priority for the government among its various health care fraud initiatives. DOJ’s Fraud Section heads up the Prescription Strike Force, which in the past six years, together with the New England Prescription Opioid (NEPO) Strike Force, has charged over 120 defendants for illegally prescribing nearly 120 million controlled substance pills that were medically unnecessary. As of February 2024, more than 85 of those defendants had been convicted.
In April 2023, a Tennessee jury convicted a nurse practitioner – known locally as the “Rock Doc” – on multiple counts of prescribing opioids, including oxycodone and fentanyl, outside the scope of professional practice and without a legitimate medical basis. And in June 2023, a Kentucky jury returned a guilty verdict against a dentist for unlawfully prescribing opioids for routine dental procedures, including morphine that caused the death of one of his patients. A few days later, DOJ announced a two-week nationwide law enforcement action, coordinated with federal and state law enforcement partners, that resulted in criminal charges against 24 physicians and other health care professionals for their alleged participation in opioid abuse schemes.
As the nation’s unprecedented opioid crisis continues to unfold, we expect that the government will keep leveraging its strike forces and other resources to pursue health care providers for their alleged role in unlawfully supplying these drugs.
Telemedicine Fraud
We anticipate that telemedicine fraud will be another top enforcement area in 2024. On February 26, 2024, the DOJ’s Health Care Fraud Unit (HCFU) issued an annual Year-in-Review report for the last fiscal year, identifying telemedicine fraud as a priority. It explained that, since the onset of the Covid-19 pandemic, fraud schemes utilizing telemedicine have “exploded.” These fraud schemes allegedly involve call centers and marketers often targeting the elderly and disabled populations through either predictive dialers or direct mail, television, internet, and other forms of advertising. These purported marketers then “upsell” to these vulnerable populations unnecessary durable medical equipment, medical testing, prescriptions, and other items, and gather personal information to draft doctors’ orders without the input of trained medical professionals or staff. Telemedicine companies then offer remuneration to doctors or nurses to sign these orders without any in-person patient interaction or with only a brief telephonic conversation. Medical equipment companies or laboratories ultimately use these signed orders to submit fraudulent claims to Medicare and other health insurance plans. The HCFU stated in its report that its prosecutions “aim to provide full-spectrum accountability of actors at all levels of these conspiracies.”
Consistent with the report above, DOJ has brought major telemedicine fraud actions in recent years and will likely continue to do so. As recently as February of this year, the U.S. Attorney’s Office for the District of Massachusetts announced in a press release that it prosecuted the owner of Expansion Media (Expansion) and Hybrid Management Group (Hybrid), who pleaded guilty in connection with a $110 million telemedicine fraud scheme involving medically unnecessary durable medical equipment, including orthotics such as back and knee braces. The fraud scheme essentially falls within the pattern described above, where, in exchange for kickbacks, the owner of Expansion and Hybrid assisted telemedicine companies obtain signatures by doctors and nurses for fraudulently generated orders without performing a legitimate examination of Medicare beneficiaries. Notably, this prosecution reflects a continuation of the telemedicine enforcement trend from last year, where the DOJ engaged in a major two-week national campaign that brought criminal charges against 78 defendants for alleged participation in healthcare fraud, including against corporate executives of the telemedicine companies as well as licensed physicians who signed these fraudulent orders.
Increasing Use of Data Analytics
While relators (or “whistleblowers”) continue to be the primary fuel for FCA enforcement, DOJ is increasingly turning to data analytics as another means to identify potential fraud by looking at outliers in health care reimbursement data. The HCFU, which prosecutes complex health care fraud cases, touts its “team of dedicated data analysts [that] work with prosecutors to identify, investigate, and prosecute cases using data analytics.” In its 2023 recap, DOJ’s Fraud Section noted that the HCFU’s Data Analytics Team fulfilled nearly 3,000 data requests and proactively made over 200 investigative referrals.
It’s no wonder that data analytics played a role in significant convictions and settlements. In one case, the HCFU used data analytic tools to identify suspected fraud related to the CARES Act Provider Relief Fund, revealing that certain individuals had no COVID-19-related expenses and misappropriated the funds for personal expenses. As of February 2024, 12 of the 14 defendants charged for this conduct had been convicted. Another example involved Medicare billing for respiratory pathogen panel (RPP) testing in conjunction with Covid-19 billing where RPP testing was not medically necessary. The Los Angeles-based Health Care Providers Lab (HCPL) stood out in data analysis as “an extreme outlier for billing the CPT codes for RPP testing,” and almost always combining these with codes for COVID-19 testing. The data also revealed clusters of patients in the same area and large numbers of patients referred to the lab by the same physicians. Through an HCFU investigation, the government determined that the lab had been obtaining nasal swab specimens from various patients in group settings (e.g., assisted living facilities, rehabilitation facilities, primary and secondary schools) for Covid-19 testing but had been running RPP tests on some of the specimens without medical justification, resulting in around $360 million in fraudulent claims to Medicare and other insurers for RPP tests and around $54 million in reimbursements to the lab. The owners of the lab, a husband and wife, both pleaded guilty.
In a September 30, 2023, press release, DOJ revealed a $172 million settlement by Cigna Group to resolve FCA allegations. The settlement related to allegations of fraudulent billing to Medicare Advantage (also known as Medicare Part C), which last year became the largest component of the Medicare program based on the number of beneficiaries and federal spend. According to DOJ, Cigna submitted false diagnosis codes on claims for its Medicare Advantage plan members, reporting “diagnoses of serious and complex conditions” without proper diagnostic tools and to “increase its Medicare Advantage payments by making its plan members appear sicker.” The U.S. Attorney’s Office for the Eastern District of Pennsylvania, in connection with this settlement, stated that it is prioritizing the investigation of fraud involving Medicare Advantage, given its growth, and that the Office employs “data-driven investigative methods” as part of its investigations.
We can expect to see data analytics play an increasingly larger role in the government’s investigation and prosecution of health care fraud, particularly as analytical tools and artificial intelligence continue to become more sophisticated.
False Claims Act Enforcement
As we noted in our recent FCA post, 2023 was a big year for the False Claims Act. The government resolved a record-breaking number of FCA matters and significant FCA decisions continued to shape the future of FCA enforcement. Health care has long been, and will continue to be, a key area of FCA enforcement for the government and the primary source of FCA settlement payments (in 2023, roughly 70% of all FCA settlement proceeds). Within health care, the government remains focused on financial inducements for referrals (also associated with charges under the Anti-Kickback Statute and the Stark Law prohibiting self-referrals) and unlawful laboratory referrals, among other alleged schemes.
We first look at the numbers. On February 22, 2024, when he spoke at the Federal Bar Association’s Qui Tam Conference regarding health care fraud enforcement in 2024, Principal Deputy Assistant Attorney General Boynton highlighted the following metrics from 2023:
- It marked the 15th consecutive year that DOJ’s FCA recoveries exceeded $2 billion (they almost reached $2.7 billion);
- DOJ had record-setting performance, scoring 543 FCA settlements and judgments;
- DOJ investigated 712 qui tam lawsuits – the third-highest yearly total in the FCA’s history;
- DOJ complemented its qui tam cases by opening more than 500 FCA cases that were not qui tams; and
- DOJ’s Fraud Section issued 1,504 Civil Investigative Demands, marking another all-time record.
The FCA activity we are seeing lately also includes cases predicated on violations of the Stark Law (prohibiting physician self-referrals). On October 10, 2023, DOJ
announced an $85.5 million settlement with Cardiac Imaging Inc. to resolve allegations that the mobile cardiac PET scan provider and its founder paid kickbacks to cardiologists by giving them above-market supervision fees to induce patient referrals for PET scans, thereby violating the Anti-Kickback Statute (AKS) and the Stark Law. DOJ later went after the company’s former president and CFO, announcing on February 5, 2024, the unsealing of a
complaint against the former executive for playing a pivotal role in the scheme.
On December 19, 2023, DOJ published a press release regarding the largest-ever FCA settlement based on Stark Law violations. The Indianapolis-based Community Health Network Inc. agreed to pay $345 million to resolve allegations that it paid various physicians, including cardiologists and certain surgeons, compensation above fair market value, awarded bonuses to physicians based on their number of referrals, and submitted claims to Medicare based on these referrals. The settled litigation arose from a whistleblower complaint filed in 2014 by the company’s former CFO and COO.
Amidst a busy year for FCA enforcement, the Supreme Court issued two significant FCA decisions in the summer of 2023. The first, United States, ex rel. Polansky v. Executive Health Resources, Inc., 599 U.S. 419 (2023), addressed the timing and standard of review for the government to dismiss an FCA case over a relator’s objection. The Court concluded that the government may dismiss a case so long as it intervened at some point in the litigation, whether during the initial seal period or subsequently after showing good cause for an initial declination. The Court also clarified that district courts, when reviewing a motion to dismiss by the government, should apply the ordinary voluntary dismissal standards set forth in Rule 41(a) of the Federal Rules of Civil Procedure. It remains to be seen whether the Polansky decision will have an impact on the frequency with which the government pursues voluntary dismissals.
In the second, United States ex rel. Schutte v. SuperValu Inc. and United States ex rel. Proctor v. Safeway, Inc., 598 U.S. 739 (2023), the Court considered a pair of consolidated cases regarding the FCA’s scienter requirement and unanimously held that defendants cannot avoid FCA liability by demonstrating that their conduct was consistent with an “objectively reasonable” interpretation of an ambiguous legal requirement. The relevant inquiry, the Court clarified, is the defendant’s knowledge (whether actual or constructive) and subjective beliefs at the time the defendant submitted the allegedly false claim. This decision will likely have at most a modest impact on the trajectory of FCA investigations and litigations, given the unique facts in these cases and the government’s – and courts’ – longstanding focus on a defendant’s subjective belief as the relevant metric of scienter. For a further analysis of lower courts’ application of these decisions, please see our recent FCA post.
The Supreme Court has not been the only court to issue significant FCA decisions lately. In March 2024, the U.S. Court of Appeals for the Second Circuit addressed the type of knowledge a relator must prove to prevail in an FCA claim based on an Anti-Kickback Statute (AKS) violation. See United States ex rel. Hart v. McKesson Corp., No. 23-726-cv, 2024 U.S. App. LEXIS 5857 (2d Cir. Mar. 12, 2024). The relator in this case filed a complaint against pharmaceutical wholesaler McKesson, asserting violations of the AKS and analogous state laws based on the company’s alleged provision of valuable business management tools to physicians to induce them to purchase drugs from the company. The district court dismissed the AKS claim on the basis that the relator had not sufficiently pleaded the requisite level of scienter for an AKS claim, namely that the company had acted “willfully.” Affirming the district court, the Second Circuit held that to act “willfully” for the purpose of an AKS violation, a defendant must have knowledge that its conduct is somehow unlawful, even if the defendant is not aware that the conduct specifically violates the AKS.
McKesson may raise the bar for some courts that were allowing relator’s AKS claims to survive a motion to dismiss where the allegations did not satisfy the willfulness requirements articulated by the Second Circuit, and therefore spare defendants from litigating these cases or paying hefty sums to settle them.
We will report on these issues as they arise in 2024.
For the full series, please see: White Collar Year in Preview
