Headlines that Matter for Companies and Executives in Regulated Industries
Seventh Circuit Reverses AKS Conviction Involving Allegations of Illegal Marketing and Advertising
On April 14, the US Court of Appeals for the Seventh Circuit reversed the criminal conviction of Mark Sorensen after a jury found him guilty of violating the Anti-Kickback Statute (AKS). The conviction was premised on Sorensen’s alleged payments to advertising and marketing companies that worked with a medical device manufacturer to sell orthopedic braces to Medicare patients. On appeal, the Seventh Circuit ruled that the payments did not violate the AKS because Sorensen and the businesses with whom he worked were “neither physicians in a position to refer their patients nor other decisionmakers in positions to ‘leverage fluid, informal power and influence’ over healthcare decisions.” Thus, Sorensen’s payments to the other companies were not made to “refer” patients.
Sorensen owned and operated SyMed, Inc., a durable medical equipment distributor, which worked with marketing firms to publish advertisements for the orthopedic braces. After an interested patient responded to an advertisement, a sales agent would contact the patient, obtain the patient’s information, and fax prefilled and unsigned prescriptions forms to the patient’s physician. Once received, the physician decided whether to sign and return the form. The evidence at trial showed that most of the physicians who received the form ignored it. If a physician did fill out the form, SyMed directed the manufacturer to ship the braces to the patient. A billing agency would bill Medicare on SyMed’s behalf. SyMed would then pay the manufacturer and the billing agency a portion of what it received from Medicare. The manufacturer would pay the marketing firms.
After a trial, a jury found Sorensen guilty of one count of conspiracy and three counts of offering and paying kickbacks in return for referral of Medicare beneficiaries to SyMed. In reversing the conviction, the Seventh Circuit reasoned that neither Sorensen, the manufacturer, nor the marketing agencies leveraged any sort of informal power and influence over health care decisions. Importantly, the Seventh Circuit continued, Symed’s business model did not prevent physicians from independently authorizing the prescription of the orthopedic braces; rather, the physicians “retained full discretion to determine whether to prescribe the advertised care.” In short, no physician ever received a kickback. Thus, there was insufficient evidence to support Sorensen’s AKS conviction.
The case is USA v. Sorensen, case number 24-1557, in the US Court of Appeals for the Seventh Circuit.
Eleventh Circuit Partially Revives FCA Suit Against Florida Medical Suppliers
On April 17, the US Court of Appeals for the Eleventh Circuit largely affirmed the dismissal of a False Claims Act (FCA) complaint against two medical suppliers, but also reversed and permitted one theory of liability to move forward to discovery.
The relators in the case, Jaime Vargas and Francis Alvarez, were former employees of Lincare, Inc. and its Florida-based subsidiary, Optigen, Inc. They alleged violations under the FCA in connection with the defendants’ marketing of its continuous positive airway pressure (CPAP) devices, which are used to treat obstructive sleep apnea.
First, the relators alleged that Optigen engaged in a practice of coding CPAP accessories, such as batteries and cables, as ventilator-related items, allowing it to circumvent Tricare’s billing restrictions and be reimbursed for devices not otherwise covered by Tricare. Second, the relators alleged that Optigen waived patient co-pays without assessing financial hardship. Third, they alleged that, to boost sales, Optigen automatically shipped CPAP replacement supplies to patients who had not requested them. Fourth, the relators alleged that Optigen paid “setup fees” and other gifts to technicians at sleep clinics, who acted as independent contractors, and allegedly worked with sleep clinicians who prescribed CPAP machines. The district court dismissed all four alleged schemes forming the basis of the complaint for failure to state a claim sufficient to withstand Federal Rule of Civil Procedure 9(b)’s particularity requirement.
The Eleventh Circuit reversed the lower court’s dismissal as to the first scheme because the relators identified specific claims with dates, amounts, and billing codes to support its allegations, pointing out that there was a factual dispute as to whether Tricare allowed the use of the billing codes at issue. But as to the latter three schemes, the court found that the relators failed to allege that any of the schemes caused a false claim to the government.
The case is Vargas v. Lincare, Inc., case number 24-11080, in the US Court of Appeals for the Eleventh Circuit.
Panamanian Government Secures Guilty Plea From Doctor Who Committed Fraud Against VA
Following a joint US-Panama criminal investigation, Panamanian authorities obtained a criminal plea from Dr. Rolando Chin, a surgeon who resides in Panama. According to US authorities, Dr. Chin and other health care-related individuals and entities perpetrated a fraud scheme against the US Department of Veterans Affairs (VA).
Prior to the guilty plea, the government discovered that doctors and pharmacies in Panama were making fraudulent claims to the VA’s Foreign Medical Program (FMP). The FMP supports vital medical care for US veterans living abroad. These false and inflated claims included claims for services never rendered or medicines never received, as well as deceptive billing for services performed.
Following an investigation in December 2022, the United States filed a criminal complaint with the Public Ministry of Panama against about 40 Panamanian defendants for fraud and money laundering. Parties included doctors, pharmacies, corporations, and a hospital. Since then, the US Department of Justice (DOJ) and the Panamanian government have been investigating the claims. In August 2023, Panamanian prosecutors filed their first set of charges.
After obtaining a guilty plea from Dr. Chin, the DOJ secured a restitution agreement. Moreover, after the United States filed its complaint in Panama, the VA instituted a government-wide suspension of the defendants, which took effect in August 2024. According to the VA, since instituting the suspension, it projects that FMP expenditures in Panama for Fiscal Year 2025 will be cut in half compared to last year, a savings of almost $25 million.
The DOJ’s press release can be found here.
OHM Pharmacy Pleads Guilty to Health Care Fraud and Agrees to Pay More Than $1 Million to Resolve FCA Claims
OHM Pharmacy Services (OHM), a Florida-based pharmacy that also goes by the names “Benzer” and “Auburndale,” agreed to plead guilty to one count of health care fraud and pay $82,000 in restitution in connection with its scheme to fill out prior authorization forms in place of prescribing physicians. OHM also agreed to resolve the government’s FCA claims for about $1 million.
According to the DOJ, OHM’s conduct revolved around the drug Evzio, an injectable naloxone product indicated for use on an emergent basis to rapidly reverse opioid overdoses. Because Evzio is expensive, insurers and Medicare Part D plans often require that health care providers submit prior authorization forms before covering the drug. OHM, however, completed prior authorization forms in the place of a prescribing physician. OHM personnel would at times sign the prior authorization forms without a physician’s permission and submit information to insurers as if a physician submitted it. In some instances, the prior authorization forms that OHM submitted contained false information when it asserted that a patient previously tried and failed to successfully use Narcan or naloxone when he or she had not.
The US Attorney’s Office for the District of Massachusetts settled with several other entities in connection with their Evzio-related practices. In July 2022, Solera Specialty Pharmacy entered a deferred prosecution agreement and agreed to pay $1.31 million to resolve the government’s FCA claims for its alleged role in submitting false prior authorization forms for Evzio. Then, in November 2021, kaléo, inc., a Virginia-based pharmaceutical manufacturer, paid $12.7 million to resolve allegations that it directed prescribing doctors to preferred pharmacies that would, in turn, submit false prior authorization requests for Evzio. Kaléo allegedly also dispensed Evzio without collecting or attempting to collect co-payment obligations from government beneficiaries.
The US Attorney’s Office for the District of Massachusetts’ press release about the OHM resolution can be found here.
Minnesota Couple Indicted in Health Care Fraud Scheme
In a recently unsealed indictment, the government charged Gabriel Adam Alexander Luthor and Elizabeth Christine Brown with several counts of wire fraud and money laundering for their alleged role in orchestrating a scheme to overbill Medicare, Medicaid, and insurance companies.
Through their company, Golden Victory Medical, LLC (GVM), Luthor and Brown allegedly caused insurers to lose $15 million by overbilling for neurofeedback therapy and other medical services. Neurofeedback is a therapy where a medical provider places sensors on a person’s scalp to broadcast live images of the person’s brain waves on a computer screen. The purpose of the therapy is to indicate the effects of interventions meant to treat mental health conditions. Luthor and Brown, however, allegedly overbilled insurers for the neurofeedback services by using numerous inapplicable medical codes. The government alleges that GVM submitted claims to insurers using medical codes that did not cover the neurofeedback services that GVM provided, combinations of codes that could not be combined, and codes that indicated that GVM’s patients received a longer duration of services than the company had actually provided. Luthor and Brown engaged in this conduct despite warnings from insurers, an outside auditor, and the Center for Medicare and Medicaid Services, according to the government’s allegations.
Luthor and Brown allegedly transferred the proceeds of the scheme to various bank accounts so they could make lucrative personal purchases.
The US Attorney’s Office for the District of Minnesota’s press release can be found here.
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