Investigations Newsletter: Florida Doctor Charged in $681 Million Fraud Scheme Involving Substance Abuse Treatment

Arent Fox

Litigation Developments

Florida Doctor Charged in $681 Million Fraud Scheme Involving Substance Abuse Treatment

On July 30, 2020, a criminal complaint was unsealed charging Michael J. Ligotti, D.O., with conspiracy to commit health care fraud and wire fraud for his alleged role in a nearly-decade long scheme to fraudulently bill Medicare and private insurance companies for tests and treatments for patients seeking help related to drug and alcohol addiction.

The complaint alleges that the doctor-owned and operated Whole Health in Delray Beach, Florida, which advertised its practice as an urgent care facility, family doctor, and addiction treatment medical office. The complaint notes that the majority of Whole Health’s patients were insured individuals addicted to substances such as drugs and alcohol.

Ligotti also allegedly agreed to become the Medical Director for a number of other treatment facilities or sober houses. The government claims the doctor employed a quid pro quo scheme in which he would, as the supposed Medical Director, provide the owners and operators of the other treatment centers and sober homes with standing orders that authorized laboratory testing for patients at their facilities, without regard to medical necessity. In return, the government alleges Ligotti received a nominal salary and required the facilities to have their patients treated by Whole Health, allowing the doctor to bill hundreds of millions of dollars in additional fraudulent treatments. These treatments included unnecessary and expensive urinalysis tests, expensive blood tests, non-existent therapy sessions, office visits, and other services, regardless of whether such treatment and testing were medically necessary or actually provided. The testing laboratories are also alleged to have sometimes paid kickbacks to the sober homes or treatment facilities.

According to the complaint, Ligotti allegedly served as Medical Director at over 50 addiction treatment facilities and signed more than 136 standing orders authorizing the fraudulent tests. The complaint alleges that from approximately May 2011 through March 2020, private insurance companies and Medicare were fraudulently billed approximately $681 million for laboratory testing claims and other services as part of this fraudulent scheme, for which they paid approximately $121 million.

The DOJ’s press release detailing the charges is here.

Whistleblower Suit Claims Cigna Overbilled Medicare Advantage by $1.4 Billion

A whistleblower lawsuit made public on August 4, 2020, claims Cignca Corp. overbilled Medicare Advantage by more than $1.4 billion by convincing nurses to diagnose policyholders with overstated medical problems. The suit contends that between 2012 and 2017, Cigna-HealthSpring, a Cigna division, billed for medical conditions that did not exist, were not recorded in any medical records, and were not based on any clinically reliable information. The whistleblower, who works for a Cigna contractor, represented himself when filing the lawsuit.

It is currently unclear whether the DOJ has intervened in the case. A February 2020 Order from U.S. District Judge Kenneth Karas noted that the DOJ declined to intervene in some of the allegations but, for the time being, would not intervene in the remaining claims. The February Order also indicated the complaint would be unsealed in April, yet it only appeared on the docket this week. According to a Law360 article, Law360 reached out to DOJ representatives to ask whether the government would be intervening. Then, within 40 minutes, the entire docket was placed under seal again on Pacer. Law 360 reported that a DOJ representative declined to comment on the status of intervention.

Read additional details about the case here.

Texas Man Taken Into Custody for Spending COVID Relief Funds on Luxury Items

A Texas-based entrepreneur was arrested and a complaint was unsealed on August 4, 2020, in a scheme to submit fraudulent Paycheck Protection Program (“PPP”) loan applications to federally insured banks and other lenders.

Lee Price III allegedly obtained more than $1.6 million in PPP loans through Price Enterprises Holdings, which is alleged to have received over $900,000, and 713 Construction, which is alleged to have received more than $700,000. Although the loan applications submitted for Price Enterprises Holdings and 713 Construction claimed each entity had numerous employees and payroll expenses, the complaint contends neither entity has employees or pays wages matching the amounts included in the loan applications. Additionally, the person named as CEO on the 713 Construction loan allegedly died before the loan application was submitted.

According to the complaint, Price made several personal purchases using the loan proceeds, including on a Lamborghini Urus, a Rolex watch, and real estate transactions. Further, Price allegedly spent thousands of dollars at night clubs and strip clubs. Under the PPP, businesses must use the loan proceeds for payroll costs, interest on mortgages, rent, and utilities. The PPP allows the interest and principal to be forgiven if businesses spend the proceeds on these expenses within a set time period and use at least a certain percentage of the loan towards payroll expenses.

The DOJ’s press release is available here.

Legislative Updates

Senator Grassley Working on FCA Amendments to Aid Relators

In a July 30, 2020 speech before the Senate honoring the first National Whistleblower Appreciation Day, Senator Charles Grassley announced that he was working on legislation to amend the False Claims Act (“FCA”) so it “will provide timely, critical protections to whistleblowers working in our nation’s law enforcement agencies.” Senator Grassley said the legislation seeks to clarify ambiguities created by the courts in FCA cases, although the only specific example he provided was the Department of Justice’s (“DOJ”) authority to dismiss FCA cases over relators’ objections.

Senator Grassley discussed the DOJ’s recent practice of dismissing charges in many FCA cases following the DOJ’s issuance of the Granston Memo in January 2018, which encouraged DOJ attorneys to seek dismissal of FCA cases where it served one or more important policy objectives. According to the Granston Memo, even in non-intervened cases, the government expends significant resources in monitoring cases and sometimes must produce discovery or otherwise participate in the litigation. The Granston Memo further notes that cases lacking substantial merit can generate adverse decisions that impact the government’s ability to enforce the FCA. Historically, however, the DOJ infrequently sought dismissal of non-intervened qui tam cases.

Senator Grassley explained that the proposed amendment would require the DOJ to state its reasons for declining to prosecute a whistleblower claim. This purported change is unsurprising, given that Senator Grassley has been vocal about his disagreement with the DOJ’s claim that it can dismiss for any non-fraudulent reason, not a non-arbitrary reason, as the court held in Swift v. United States, 318 F.3d 250 (D.C. Cir. 2003).

The bill would also afford whistleblowers an opportunity to be heard if the DOJ drops a False Claims Act case. However, even without the proposed legislation, relators are still entitled to be heard under the FCA when the government moves to dismiss.

Arent Fox will continue to monitor these developments. The complete Granston Memo is available here. Senator Grassley’s speech is available on his website.

SEC Developments

New Charges Highlight Risks Associated with Self-Directed IRAs

Last week, a Texas-based CEO and his company, Integrity Aviation & Leasing (“IAL”), were charged with violating antifraud and securities registration provisions of the federal securities laws connected to a fraudulent investment scheme.

According to the complaint, IAL’s CEO, Victor Lee Farias, and the company raised $14 million from investors, many of whom were retired San Antonio police officers and other first responders. The SEC alleges many investors withdrew funds from their retirement accounts and deposited them in self-directed IRA accounts in order to make the investments. In 2018, the SEC issued an Investor Alert detailing the fraud risks associated with self-directed IRAs.

The SEC further alleges that Farias and IAL promised the funds would be used to purchase engines and other aircraft parts for leasing to airlines. Farias and IAL allegedly claimed IAL utilized an algorithm to identify profitable leasing opportunities and assured investors that all investments would be secured by IAL’s assets. The complaint contends, however, that no engines were ever purchased and only a small portion of investor funds were expended on aircraft parts. Instead, the SEC claims that Farias and IAL spent more than $11.6 on unauthorized purchases, including making $6.5 million in Ponzi-like payments to investors and putting $2.7 million into a friend’s business. The complaint also alleges Farias used nearly $2.5 million for personal expenses.

After Farias learned that the SEC initiated an investigation, he allegedly continued to mislead investors. The SEC claims Farias used letterhead from its investigative subpoena as “proof” that Farias was working with the SEC to take IAL public. The SEC is seeking injunctive relief, disgorgement and prejudgment interest, and civil penalties.

Read the SEC’s press release here.

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