False Claims Act
Court Rules Prescription Drug Event and Enrollee Encounter Data Are 'Claims for Payment' Under the False Claims Act
US District Judge Noel L. Hillman approved a whistleblower’s request to file a Fourth Amended Complaint after holding that prescription drug event (PDE) data and enrollee encounter data are “claims for payment[1]” under the False Claims Act.
Whistleblower Marc Silver, a former pharmacy owner and nursing home operator, filed a motion to amend his Third Amended Complaint against PharMerica Corporation, a pharmacy services company. Silver’s Third Amended Complaint alleged that PharMerica created an illegal kickback scheme when it offered unreasonable and below fair-market-value prices for prescription drugs to nursing homes for their Medicare Part A patients in exchange for the opportunity to provide the same drugs, at a substantially higher cost, to the nursing homes’ Medicaid and Medicare Part D patients.
Judge Hillman granted Silver’s motion to amend, holding that FCA liability can be based on the submission of electronic data to the federal government, such as PDE data submitted to the Centers for Medicare & Medicaid Services, and enrollee encounter data submitted by Medicaid managed care organizations to state Medicaid Agencies. Judge Hillman relied on the 2018 decision by the Eastern District of Pennsylvania in United States ex rel. Spay v. CVS Caremark Corp. that held “PDE records submitted by defendants to CMS are clearly claims for payment,” and applied the same rationale in finding enrollee encounter data to be claims for payment on which FCA liability may be based.
The case is U.S. ex rel. Marc Silver et al. v. Omnicare Inc. et al., No. 1:11-cv-01326 (D.N.J.), and the opinion can be found here.
[1] Under the False Claims Act, a “claim” is defined to be a “request or demand . . . for money or property.” 31 U.S.C. § 3729(b)(2)(A).
DOJ Developments
Two Kentucky Men Plead Guilty in Oil and Gas Fraud Case
Two Kentucky men pled guilty to conspiracy to commit wire fraud and wire fraud for their participation in a scheme to solicit investments in an oil and gas drilling business and then diverting some of the funds raised for personal use.
The two men operated Phoenix Development Drilling Corporation, an owner of drilling permits and leases for properties in Kentucky. According to the DOJ’s press release, the drilling programs’ marketing materials represented that the company would use invested funds to drill for oil and to further the growth of the company, when in reality only approximately 10% of the money raised was spent on legitimate business purposes. The rest of the invested money was diverted for personal use, including personal expenses, such as vacations, golf, jewelry, dating and adult websites, clothing, and online gambling, among other expenses.
Read the DOJ’s press release here.
DOJ Developments
Queens Pharmacy Owner Pleads Guilty to $6.5 Million Health Care Fraud Schemes
The owner and operator of five New York pharmacies – Superdrugs, Inc., Superdrugs I Inc., Superdrugs II Inc., S&A Superdrugs II Inc., and Village Stardrugs Inc – pled guilty to mail fraud, health care fraud, and conspiracy to commit healthcare for her role in schemes to defraud health care programs, such as Medicare and Medicaid. According to the DOJ’s press release, the defendant submitted claims for prescription drugs that were not dispensed, not medically necessary, and that were dispensed through a pharmacy not registered with the State of New York at the time. The defendant then used the proceeds to purchase luxury items, including jewelry and a Porsche. As part of the plea agreement, she will pay $6.5 million in restitution to Medicare and Medicaid and agreed to forfeit an additional $5.1 million.
Read the DOJ’s press release here.
Our Analysis
Distinguishing Hype From Fraud: Tech Startup Founder’s 97-Month Sentence Provides Cautionary Tale
Journalist John Carreyrou, whose reporting helped expose what the SEC called an “elaborate, years-long fraud” by Theranos founder and CEO Elizabeth Holmes, wrote in his book Bad Blood: “Hyping your product to get funding while concealing your true progress and hoping that reality will eventually catch up to the hype continues to be tolerated in the tech industry.” While reasonable minds could differ as to the tech industry’s toleration for such tactics, it is becoming increasingly clear that the Department of Justice (DOJ) is on high alert for situations when hype turns to fraud at tech startups.
On March 26, 2021, DOJ announced that the former CEO and founder of Trustify, a private investigator platform, was sentenced in the Eastern District of Virginia to more than eight years in prison, ordered to pay $18,131,742.21 in restitution, and ordered to forfeit $3.7 million, for his role in an investment fraud scheme. The defendant had previously pleaded guilty, in December 2020, to one count of securities fraud and one count of wire fraud in connection with the alleged scheme.
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