Articles Posted in Whistleblower Cases

The Sixth Circuit U.S. Court of Appeals has revived a shareholder class-action lawsuit against Community Health Systems, alleging the for-profit hospital operator deceived shareholders by keeping secret that its profits were based on Medicare fraud. Shareholders sued CHS in 2011, claiming the company followed a policy that encouraged physicians to admit Medicare patients to the hospital instead of treating them in less lucrative outpatient settings. The Complaint was filed on April 11, 2011,  by Dallas-based Tenet Healthcare, which sued CHS to avoid a hostile takeover bid. Immediately after Tenet sued, CHS issued a press release stating Tenet’s allegations were meritless. However, Larry Cash, who then served as CHS’ CFO, allegedly admitted the company’s hospitals did use the Blue Book, a guide CHS created that prompted physicians to provide inpatient services for many conditions other hospitals would treat as outpatient cases. Mr. Cash said 30 of CHS’ hospital had already quit using the Blue Book, and the rest would do so by the end of 2011, according to court documents.

In October 2011, CHS released weaker-than-expected earnings. On an earnings call, Mr. Cash said inpatient admissions had declined at 75 percent of its hospitals after physicians phased out the Blue Book. On that same call, CHS Chairman and CEO Wayne Smith said, “there’s no question we’ve had some adverse impact related to issues … around the Tenet lawsuit,” according to court documents. After the admissions by executives, CHS’ stock price dropped another 11 percent. Shareholders subsequently sued CHS, claiming they lost a combined $891 million in the little more than six months between April 11, 2011, when Tenet sued, and Oct. 27, 2011, the day after the earnings call and the executive admissions.  Although CHS continued to deny Tenet’s allegations, the company paid  $98.15 million settlement with the Department of Justice in 2014 to resolve allegations it knowingly billed government payers for inpatient services that should have been billed as outpatient or observation services.

The district court dismissed the lawsuit filed by shareholders in 2016. The court said the shareholders failed to show Tent’s lawsuit caused CHS’ stock to drop and triggered their losses. On Wednesday, an appeals panel revived the shareholder suit, finding that CHS executives’ public admissions combined with the fraud allegations were enough to keep the shareholders’ lawsuit alive.

 DaVita Rx LLC, a nationwide pharmacy that specializes in serving patients with severe kidney disease, agreed to pay a total of $63.7 million to resolve False Claims Act allegations relating to improper billing practices and unlawful financial inducements to federal healthcare program beneficiaries, the Justice Department announced today.

The settlement resolves allegations that DaVita Rx billed federal healthcare programs for prescription medications that were never shipped, that were shipped but subsequently returned, and that did not comply with requirements for documentation of proof of delivery, refill requests, or patient consent.  In addition, the settlement also resolves allegations that DaVita paid financial inducements to Federal healthcare program beneficiaries in violation of the Anti-Kickback Statute.  Specifically, DaVita Rx allegedly accepted manufacturer copayment discount cards in lieu of collecting copayments from Medicare beneficiaries, routinely wrote off unpaid beneficiary debt, and extended discounts to beneficiaries who paid for their medications by credit card.  These allegations relating to improper billing and unlawful financial inducements were the subject of self-disclosures by DaVita Rx and a subsequently filed whistleblower lawsuit.

DaVita Rx has agreed to pay a total of $63.7 million to resolve the allegations in its self-disclosures and the whistleblower lawsuit.  DaVita Rx repaid approximately $22.2 million to federal healthcare programs following its self-disclosure and will pay an additional $38.3 million to the United States as part of the settlement agreement.  In addition, $3.2 million has been allocated to cover Medicaid program claims by states that elect to participate in the settlement.  The Medicaid program is jointly funded by the federal and state governments.

The Securities and Exchange Commission charged Provectus  biopharmaceutical company with  failure to properly report as compensation millions of dollars in perks provided to its then-CEO and then-CFO. According to the SEC,  Provectus lacked sufficient controls surrounding the reporting and disclosure of travel and entertainment expenses submitted by its executives.  The order further finds that Provectus’ former CEO, Dr. H. Craig Dees, obtained millions of dollars from the company using limited, fabricated, or non-existent expense documentation, and that these unauthorized perks and benefits were not disclosed to investors.  Provectus’ former CFO, Peter R. Culpepper, also allegedly obtained $199,194 in unauthorized and undisclosed perks and benefits.

The SEC separately charged Dees in federal district court in Knoxville, Tennessee, alleging that, while Dees was Provectus’ CEO, he treated the company “as his personal piggy bank.”  According to the complaint, Dees submitted hundreds of falsified records to Provectus to obtain $3.2 million in cash advances and reimbursements for business travel he never took.  Instead, he concealed the perks and used cash advances to pay for personal expenses such as cosmetic surgery for female friends, restaurant tips, and personal travel.

“Reimbursement of travel and entertainment expenses, and other perks paid to executives, can be material information, and companies must ensure that the perks they pay for executives are properly recorded and disclosed in public filings,” said Stephanie Avakian, Co-Director of the SEC’s Enforcement Division.  “Provectus failed to give its shareholders all of the relevant information about how its top executives were being compensated by the company.”

According to the publication STAT, a Boston Globe publication, three more drug makers have allegedly relied on fraudulent schemes where  which nurses were used to illegally promote its diabetes medicines to physicians. The information comes from three unsealed lawsuits filed by whistleblowers under the False Claims Act.  The lawsuits allege that Gilead Sciences, Amgen , and Bayer Pharmaceuticals hired nurses to promote treatments to doctors and their patients, an arrangement that purportedly violated federal kickback laws.

In each lawsuit, the drug makers allegedly used various means to improperly use nurses to promote their medicines. One allegedly involved using a third party to deploy nurse educators to sell drugs. The companies also provided free nurses and reimbursement support services to save physicians money and to induce them to prescribe their medicines, according to the lawsuits. This service for value is considered a kickback under law. As a result, Medicare and Medicaid were fraudulently billed for  prescriptions say the lawsuits. The lawsuits also named other companies that were engaged to further their goals, including Covance, HealthStar Communications, and AmerisourceBergen.

A similar suit was against Eli Lilly . All three of the lawsuits, which were filed last June in a federal court in Texas and unsealed more recently, were initiated by Health Choice Advocates, a unit of a health care research that describes itself as a whistleblower.


 The Justice Department announced  that IBERIABANK Corporation, IBERIABANK and IBERIABANK Mortgage Company (collectively, IBERIABANK) have agreed to pay the United States $11,692,149 to resolve allegations that they violated the False Claims Act by falsely certifying they were complying with Federal requirements in order to obtain insurance on mortgage loans from the Federal Housing Administration (FHA), part of the U.S. Department of Housing and Urban Development (HUD).  IBERIABANK Corporation is headquartered in Lafayette, Louisiana, with branches across the Southeast, including Arkansas.

“Mortgage lenders must follow FHA program rules designed to avoid putting federal funds at risk and increasing the chances that borrowers may lose their homes,” said Principal Deputy Assistant Attorney General Chad A. Readler, head of the Justice Department’s Civil Division.  “The Department will continue to hold accountable lenders that knowingly violate material program requirements that cause the government to guarantee ineligible loans.”

During the time period covered by the settlement, IBERIABANK participated as a direct endorsement (DE) lender in the FHA insurance program.  A DE lender has the authority to originate, underwrite and endorse mortgages for FHA insurance.  If a DE lender approves a mortgage loan for FHA insurance and the loan later defaults, the holder of the loan may submit an insurance claim to HUD, FHA’s parent agency, for the losses resulting from the defaulted loan.  Under the DE program, the FHA does not review a loan for compliance with FHA requirements before it is endorsed for FHA insurance.  DE lenders are, therefore, required to follow program rules designed to ensure that they are properly underwriting and certifying mortgages for FHA insurance, to maintain a quality control program that can prevent and correct deficiencies in their underwriting practices, and to self-report any deficient loans identified by their quality control program.  FHA rules also prohibit the payment of commissions to lender underwriting staff in order to avoid improper incentives.  DE lenders such as IBERIABANK certify compliance with material FHA requirements.

The Securities and Exchange Commission today charged Oyster Bay, New York, and its former top elected official with defrauding investors in the town’s municipal securities offerings by hiding the existence and potential financial impact of side deals with a businessman who owned and operated restaurants and concession stands at several town facilities.

According to the SEC’s complaint filed in U.S. District Court for the Eastern District of New York, Oyster Bay agreed several years ago to indirectly guarantee four separate private loans to the vendor totaling more than $20 million.  The agreement to indirectly guarantee the debts allegedly stemmed from the concessionaire’s longstanding close relationship with then-town supervisor John Venditto and other officials that involved gifts, bribes, kickbacks, and political support.

The SEC’s complaint alleges that Oyster Bay and Venditto deliberately concealed the indirect loan guarantees when they should have been disclosed in connection with the town’s 26 securities offerings from August 2010 to December 2015.  According to the complaint, this information was material to current and prospective investors due to the potential impact on the town’s finances.  For example, in one scenario outlined in the SEC’s complaint, the town could have been required to make a termination payment of approximately $16 million (approximately 16 percent of the town’s operating budget) within 60 days had the vendor defaulted on the loans.

Chemed has paid the U.S. government $75 million to settle lawsuits claiming the hospice care provider submitted false claims to Medicare. The settlement relates to allegations for the period 2002 and 2013 Chemed subsidiary Vitas knowingly submitted or caused to be submitted false claims to Medicare for services to hospice patients who were not terminally ill. As part of the settlement, Vitas also entered into a five-year corporate integrity agreement with the HHS Office of Inspector General to settle the agency’s administrative claims. The settlement also resolves three lawsuits filed under the whistleblower provision of the False Claims Act, which permits private parties to file suit on behalf of the United States for false claims and share in a portion of the government’s recovery. The Act permits the United States to intervene in such a lawsuit, as it did in the three whistleblower cases filed against the defendants. These cases were subsequently transferred to the Western District of Missouri and consolidated with the government’s pending action. The amount to be recovered by the private whistleblowers has not yet been determined.

Jeffrey Newman represents whistleblowers but not those in this case.


A False Claims Act whistleblower suit filed against electronic health records company Epic is unsealed late last week and it alleges that its financial system enables a form of double billing that could have resulted in hundreds of millions of dollars of extra charges paid by the government. The two-year-old suit is being brought by a former WakeMed Health employee, contending that the Verona, Wis.-based company didn’t adjust its billing software after the Centers for Medicare and Medicaid Services changed the way that it required hospitals to bill for anesthesia services. The suit charges that, as a result, hospitals using Epic software have improperly billed the federal health insurance programs for those services.

David J. Linesch, the lawyer for the whistleblower, says he will litigate  the case against Epic. The suit contends that Epic is liable to the U.S. “under the treble damages and civil penalty provision for a civil penalty of not less than $5,000 and not more than $10,000 for each of the false or fraudulent claims herein, plus three times the amount of the damages which the government has sustained because of Defendant’s actions.”In late May, the False Claims Act was successfully used against eClinicalWorks, another vendor of an EHR system, which entered into a settlement to pay the federal government $155 million to settle a False Claims Act lawsuit contending that its products were faulty. The settlement was the first of its kind for a healthcare information technology company.

Jeffrey Newman represents whistleblowers but not the whistleblower in this case.

Vitas Healthcare, a major hospice provider has agreed to pay $75 million to settle a False Claims Act case charging the company inflated charges and overbilled taxpayers.

“Today’s resolution represents the largest amount ever recovered under the False Claims Act from a provider of hospice services,” said Acting Assistant Attorney General Chad A. Readler of the U.S. Justice Department’s civil division.  “Medicare’s hospice benefit provides critical services to some of the most vulnerable Medicare patients, and the Department will continue to ensure that this valuable benefit is used to assist those who need it, and not as an opportunity to line the pockets of those who seek to abuse it.”

In 2012, the for-profit Vitas, billed the government for patient stays in Palm Beach County that averaged 40 percent longer than those of non-profit competitors. The newspaper also showed hospice services were being marketed at assisted-living facilities as a service for people who might not necessarily die — or even get better — though federal law required a diagnosis of six months or less to live. The Justice Department filed a complaint under the False Claims Act alleging Vitas defrauded Medicare by charging for people who were not terminally ill and sending “crisis care” bills for patients that nurses said were at church, bingo or the beauty parlor.

Free Speech Is a New Defense for Off-Label Drug Pitches and It’s Having Industry-Wide Ramifications

 It’s not unheard of for drugs to be developed for one ailment and be used to treat others.  It’s fairly common, after extensive research and testing, for drugs to be used to treat a blanket of issues.  However, another approach by big pharma is raising ethical and legal concerns and their new claims that their First Amendment rights of free speech allows them to market off-label purposes for drugs to doctors.  An article  by Keith A. Spencer in Salon,  highlights a recent case that used free speech to defend untested off-label drug claims.  The article was originally published on FairWarning and it says the new free speech defense is making waves in Washington.

The Caronia Case