Headlines that Matter for Companies and Executives in Regulated Industries
OIG Warns That Proposed Drug Discounts May Warrant Sanctions
On October 5, the US Department of Health and Human Services’ Office of Inspector General (OIG) issued an advisory opinion assessing a proposal that involved drug manufacturers funding the operations of a health care nonprofit. In exchange, the nonprofit would sell the manufacturers’ oncology drugs at reduced rates to enrollees in Medicare Part D, which covers prescriptions for older Americans. The arrangement would result in significant discounts for qualifying patients.
According to the opinion, a typical cancer patient who owes approximately $2,800 for their first month of treatment would only pay $35 in the first month under the arrangement.
OIG evaluated whether the arrangement would involve prohibited remuneration under the federal Anti-Kickback Statute and whether it would present a risk of fraud and abuse.
On the issue of remuneration, OIG opined that the arrangement would create a “stream of remuneration” designed to remove barriers so eligible enrollees could purchase the manufacturer’s drugs. On the issue of fraud and abuse, OIG found that the remuneration presented many of the hallmarks that the federal Anti-Kickback Statute is designed to prevent, such as the potential for inappropriately increased costs to federal healthcare programs and the potential for anticompetitive effects.
OIG’s opinion comes after a September 2022 decision by the US Court of Appeals for the Second Circuit that found a similar proposal by Pfizer to cover nearly all of a Medicare Part D beneficiary’s copay for a drug that it manufacturers was prohibited by the federal Anti-Kickback Statute.
Read OIG’s opinion.
IRS Employees Charged with COVID-Relief Fraud
Five current and former IRS employees were charged with wire fraud for their alleged roles in a scheme to defraud the Paycheck Protection Program (PPP) and Economic Injury Disaster Loan (EIDL) Program. The defendants are accused of submitting false and fraudulent loan applications that collectively sought over $1 million.
According to the government, the defendants’ applications included false statements, including that the funds would be used for purported fashion and apparel companies belonging to the defendants, but in reality the funds were used for personal expenses, including cars and luxury clothing. In addition, one defendant is alleged to have submitted fraudulent applications for unemployment benefits while he was employed full-time by the IRS. Three of the defendants pled guilty to wire fraud.
Each defendant faces up to 20 years’ imprisonment for each count of wire fraud.
Read the DOJ press release here.
Construction Contractor Pleads Guilty in Caltrans Bid-Rigging Scheme
William D. Opp, a former construction contractor, pleaded guilty for his alleged role in a bid-rigging and bribery scheme designed to manipulate a competitive bidding scheme for contracts with the California Department of Transportation (Caltrans). According to the government, between 2015 and August 2018, Opp engaged in conduct to ensure that companies that he or his co-conspirators controlled won bids for Caltrans contracts, including by submitting sham bids by a construction company he owned with his wife.
In addition, to bid rigging, Opp is accused of paying bribes totaling over $800,000 to a former Caltrans contract manager, Choon Foo “Keith” Yong, in the form of cash, furniture, wine, and home remodeling services. In exchange, Yong is alleged to have given Opp advance notice of Caltrans contracts and assisted in submitting sham bids. Yong previously pleaded guilty for his role in the scheme and faces up to 10 years’ imprisonment. Opp is scheduled to be sentenced on January 30, 2023, and also faces up to 10 years’ imprisonment.
Read the DOJ press release.
Cattle Rancher Sentenced to Eleven Years’ Imprisonment for $244 Million Fraud
A Washington-state cattle rancher was sentenced to 11 years’ imprisonment and ordered to pay over $244 million in restitution for his role in an alleged “ghost-cattle” scheme to defraud Tyson Foods and a second unnamed company.
According to court documents, the defendant, Cody Allen Easterday, and his company, Easterday Ranches, entered into agreements with the two companies whereby they advanced Easterday's costs of buying and raising cattle. In exchange, once the cattle were sold, Easterday would repay the costs advanced plus interest, and retain as profit the amount of the sale price exceeding what was paid back to the companies. The government alleged that, between approximately 2016 and November 2020, Easterday submitted false and fraudulent invoices to the companies for the costs of purchasing and raising cattle that did not actually exist. In total, the two companies paid Easterday over $244 million to purchase and raise over 265,000 cattle which he never actually purchased. Easterday Ranches went into bankruptcy shortly after the fraud was uncovered, and the two companies were able to recover approximately $65 million following liquidation of company assets, including real property and farm equipment.
Easterday is also alleged to have defrauded the financial derivatives exchange CME Group Inc. by submitting false paperwork that resulted in exemptions for Easterday Ranches from otherwise-applicable position limits in live cattle futures contracts. The government alleged that Easterday used part of the funds he fraudulently obtained to cover approximately $200 million in commodity futures contracts trading losses he incurred.
Read the DOJ press release.
Florida Doctor Pleads Guilty to Health Care Fraud
Florida doctor Michael Ligotti pleaded guilty to one count of conspiracy to commit health care and wire fraud for his alleged role in a scheme to bill Medicare and private insurers for fraudulent tests for patients seeking drug and alcohol addiction treatment.
The government alleges that, between May 2011 and March 2020, Ligotti billed a total of $681 million for lab tests and other services, and insurers paid out $121 million.
Ligotti allegedly served as medical director for 50 addiction treatment facilities and admitted to authorizing medically unnecessary tests billed by testing laboratories that paid kickbacks to the treatment facilities. In exchange for authorizing the tests, Ligotti required the treatment facilities to send patients to a private clinic that he owned. Ligotti faces up to 20 years’ imprisonment, though his plea agreement states that the government intends to recommend a two-level sentence reduction. The plea agreement also requires him to pay a fine of up to $250,000 and restitution of $127 million.
Read Law360’s coverage.
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