Thursday, March 5, 2015

Smile Magic Dental Clinics Settle Texas Medicaid Fraud Allegations for $4.5 Million

Waters & Kraus, LLP is pleased to announce a qui tam lawsuit it filed has resulted in the largest recovery to date in a Texas dental Medicaid fraud case.

DALLAS – March 19, 2015 (amended) – Four dental clinics of the Texas Smile Magic chain have agreed to settle Medicaid fraud charges for a total of $4.5 million. The four clinics that will pay the record-setting settlement include: Smile Magic of Denton, PLLC; Smile Magic of Lewisville, PLLC; Smile Magic of Garland, PLLC; and Smile Magic of El Paso, PLLC.

Amy Smith, represented by Waters & Kraus, LLP, blew the whistle on Smile Magic. To protect Texas children and taxpayers, Ms. Smith first reported to Texas officials that Smile Magic was allegedly engaging in several acts of misconduct that violated the rules of the Texas Medicaid program and later filed a qui tam lawsuit under the Texas Medicaid Fraud Prevention Act (TMFPA).

It is alleged that Smile Magic defrauded the Texas Medicaid program by performing unnecessary or excessive dental services on young children, billed Medicaid for dental services never-performed, targeted young Medicaid beneficiaries through improper financial incentives, and used paid recruiters to round up poor kids to be used to commit Medicaid fraud. At times, the clinics allegedly solicited young Texas children by targeting their parents in grocery store parking lots, bus stops and other locations in poor neighborhoods, paid money to parents to induce them to have their kids treated at these Smile Magic clinics, and orchestrated teams of solicitors to round up Texas kids for all of these purposes. It is further alleged that, once these young, mostly poor kids were in the dentist’s chair, Smile Magic’s goal was to maximize the amount it could bill Texas Medicaid, regardless of whether the services were medically necessary or, in some cases, even provided to the patient.

Based upon the allegations by Ms. Smith and another whistleblower, the Texas Health and Human Services Office of Inspector General (OIG) and the Civil Medicaid Fraud Division of the Texas Attorney General (OAG) conducted their own investigation of Smile Magic and determined that Smile Magic submitted improper claims to the Texas Medicaid program, leading OIG to initiate its own administrative enforcement action. The OAG intervened in Ms. Smith’s qui tam lawsuit.

“We are pleased to work with the Texas OIG and OAG to obtain this significant recovery for Texas taxpayers,” said Dan Hargrove of Waters & Kraus LLP, who represents Ms. Smith. “We applaud the tenacity and professionalism of the Texas investigators and attorneys. They are protecting Texas kids and Texas taxpayers. Dental clinics that engage in health care fraud waste our scarce health care dollars. Texas taxpayers should have confidence that their hard-earned tax dollars are being put to good use – to help the neediest kids in our state – not to line the pockets of fraudsters. Texas children and their parents should have confidence they won’t be used as tools by others who seek to rip off Medicaid. This case is a good first step towards protecting our children and cleaning up the Medicaid program. But much remains to be done.”

This settlement resolves the Medicaid fraud allegations in two lawsuits filed in Travis County, Texas, as well as the administrative action brought against Smile Magic by the OIG. The TMFPA allows private citizens to sue on the government’s behalf when health care providers commit Medicaid fraud. The qui tam provisions of the TMFPA reward whistleblowers, who often act in fear of losing their jobs, with a share of any recovery.

The Smile Magic dental clinics dispute the allegations against them and deny any wrongdoing.

About Waters & Kraus 

Waters & Kraus is a national plaintiffs’ law firm devoted to representing whistleblowers in False Claims Act lawsuits and other qui tam matters involving health care fraud, government contractor fraud, tax fraud, securities law violations and foreign bribery allegations under the Foreign Corrupt Practices Act (FCPA). In addition, the firm has won record-setting verdicts, negotiated monumental settlements, and established ground-breaking new law in cases involving toxic exposure and defective products. Based in Dallas, Texas, with offices in California and Maryland, Waters & Kraus has participated in the representation of families from all fifty states and many foreign countries, as well as foreign governments. Learn more about our qui tam whistleblower practice at

Monday, November 7, 2011


In my last blog post, I wrote about the possible implications for False Claims Act litigation arising out of the Supreme Court’s opinion in Sorrell v. IMS Health, Inc., -- U.S. --, 131 S. Ct. 2653 (2011), suggesting that we were about to see numerous challenges to off-label and kickback theories under the First Amendment. Well, the time has come. In a case we are litigating with the State of Texas against Janssen that is set to go to trial at the end of November, Janssen recently filed a “bench brief” asking that the jury get a special instruction on Janssen’s First Amendment rights. The court is set to decide whether such an instruction is appropriate on the eve of trial, in late November. In Keeler v. Eisai, an off-label case filed in the Southern District of Florida, the defendant moved to dismiss, arguing in part that the off-label claims were barred by the First Amendment. The district court has not yet ruled on this theory. The response that plaintiffs have made in both of these cases is that the conduct at issue includes false and misleading speech; false and misleading speech is not protected by the First Amendment; and the statutes at issue therefore regulate only speech that is not entitled to First Amendment protections. As I suggested in my previous blog, this argument has strong support in the explicit language of Sorrell. We will be watching to see if the courts agree.

Loren Jacobson is a partner at Waters & Kraus, LLP, in the firm’s Dallas office. Her practice focuses on qui tam (whistleblower) cases and appellate matters.

Monday, October 31, 2011

Prejudgment Interest in Securities Cases can Substantially Add to a Whistleblower’s Potential Recovery

The Dodd-Frank Act allows whistleblowers who submit information about securities violations to the Securities and Exchange Commission (SEC) to recover from between 10%-30% of any SEC recovery, including civil penalties, disgorgement, and interest. The SEC must recover over $1 million in order for a whistleblower to receive an award for securities violation information. Civil penalties can be up to $150,000 for individuals and $750,000 for entities for each violation. The SEC can also seek disgorgement—which has been defined by the courts as all the profits a defendant derives from his ill-gotten gain. In addition to disgorgement, the SEC can also seek prejudgment interest on disgorgement.

The availability of prejudgment interest is one reason why awards for securities violations can be very large. In most other areas of law only post-judgment interest is available. In other words, the plaintiff only receives interest from the time in which the jury or judge enters judgment until the time that a defendant pays the award. In SEC cases, however, prejudgment on disgorgement may be awarded on a discretionary basis.[1] According to case law, "The time frame for the imposition of prejudgment interest usually begins with the date of the unlawful gain and ends at the entry of judgment."[2] One court explained the theory behind awarding prejudgment interest in saying had the defendant “been able to borrow the millions of dollars he spent that he obtained through his violations, he would have had to have paid significant interest on the loans.”[3] Prejudgment interest can greatly add to the amount the SEC recovers, particularly since there may be years between the time that the defendant commits the fraud and the time a court enters a judgment. For instance, in SEC v. Huff the court awarded $3 million in prejudgment interest on a disgorgement of $10.017 million for one of the defendants in the case.[4] Given the ability of the SEC to recover civil penalties, disgorgement, and prejudgment interest, companies that violate securities laws can expect to face heavy financial consequences for their violations.

[1] See S.E.C. v. Huff, 758 F.Supp.2d 1288, 1363 (S.D.Fla. 2010). 
[2] S.E.C. v. Yun, 148 F.Supp.2d 1287 (M.D.Fla. 2001). 
[3] S.E.C. v. Huff, 758 at 1363. 
[4] Id.  at 1366-67. 

Jennifer L. McIntosh is an attorney at Waters & Kraus, LLP, in the firm’s West Coast practice Waters, Kraus & Paul. Her practice focuses on class action cases, qui tam (whistleblower), and commercial litigation.

Monday, October 10, 2011

Sorrell and the Supreme Court’s New Approach to Commercial Speech

Will All Pharmaceutical Regulation Now Be Subject to Heightened Scrutiny?
Early this summer, in Sorrell v. IMS Health, Inc., -- U.S. --, 131 S. Ct. 2653 (2011), the Supreme Court invalidated a Vermont law that prohibited pharmaceutical marketers from using prescriber-identified information, absent the prescriber’s consent, to market drugs to physicians. Because the law did not prohibit other groups—such as research facilities—from using the same information, the Court found that the law imposed both content-based and speaker-based burdens on protected expression. Most notably, the Court expanded the category of what kinds of speech count for the purposes of heightened scrutiny under the First Amendment to include marketing activities, or commercial speech. And, given the application of heightened scrutiny, the Court narrowed the kind of content-based restrictions that might be permissible to curtail commercial speech. The court noted, for example, that the government may have a legitimate interest in protecting consumers from “commercial harms.” Id. at 2672. Specifically, the Court acknowledged that government regulation of commercial speech would be legitimate where the regulations are meant to curtail fraud or the risk of fraud. Id.
As Justice Breyer pointed out in his dissent, this expansion of First Amendment protections to commercial speech (which prior to Sorrell was understood to only be deserving of at most intermediate scrutiny) may undermine many of the regulatory schemes that have been in place for years, including FDA regulation:

The ease with which one can point to actual or hypothetical examples with potentially adverse speech-related effects at least roughly comparable to those at issue here indicates the danger of applying a “heightened” or “intermediate” standard of First Amendment review where typical regulatory actions affect commercial speech.  . . . If the Court means to create constitutional barriers to regulatory rules that might affect the content of a commercial message, it has embarked upon an unprecedented task—a task that threatens significant judicial interference with widely accepted regulatory activity.
Id. at 2676-77, 2678.
Does Sorrell mean that the government cannot put restrictions on off-label marketing? Such restrictions are clearly content-based and speaker-based, since as Justice Breyer points out, the regulatory scheme seeks to regulate the sale of drugs, but not furniture. Id. at 2677. And what about the use of kickbacks? On the one hand, the payment of kickbacks cannot be said to be “speech” and the regulation of kickbacks surely falls within the legitimate interest identified by the Sorrell majority to curtail fraud or the risk of fraud. But one commentator has already suggested that Sorrell means that government cannot interfere with kickbacks that are paid to marketers, since this is content-based interference with speech. How far will the Sorrell case be taken, and how will it affect False Claims Act cases based on off-label and anti-kickback theories? That will remain to be seen. For now, those of us who litigate these cases can only take comfort in the fraud exception laid out by the Sorrell majority, and be willing and able to show that the regulations that underlie the off-label and kickback cases fall within this category of acceptable government regulation.

Loren Jacobson is a partner at Waters & Kraus, LLP, in the firm’s Dallas office. Her practice focuses on qui tam (whistleblower) cases and appellate matters.

Monday, October 3, 2011

$150 Million Settlement Shows that Patients can be Successful Whistleblowers

Oftentimes, whistleblowers are current or former employees, but the recent case of United States ex rel West v. Maxim demonstrates that patients who notice discrepancies in their medical bills can successfully bring large scale fraud to the government’s attention. Mr. Richard West, the whistleblower in this case, received nursing services in his home provided by Maxim and paid for by the Medicaid program. Mr. West, a Vietnam veteran, received home health care for his muscular dystrophy. He kept detailed records of his care, including the hours and times that he received care. Mr. West discovered that Maxim was overbilling for the care they provided him when he received notice from the government that he exceeded the monthly cap for home health care services. Mr. West stated in regards to his fight against Maxim, “I never took any benefits I wasn't qualified for. Then to find out I was losing services I needed to stay in my own home, because the government was being billed for services I never received-- that was not going to happen!” 

In his complaint, Mr. West alleged that such overbilling was a national practice of Maxim. The government conducted both a criminal and civil investigation into Mr. West’s allegations. Several former employees of Maxim entered guilty pleas to criminal charges. Ultimately, Maxim entered into a settlement agreement of over $150 million, including criminal penalties, to resolve Mr. West’s allegations. Mr. West will receive approximately $14.8 million from the settlement. Mr. West said in regards to the successful outcome of his case, “From my wheelchair on a ventilator and oxygen, I have spent the last seven years in this fight. Sometimes the good guys win.”  This inspiring case demonstrates that patients can play an important role in bringing fraud against the government to light.   

Jennifer L. McIntosh is an attorney at Waters & Kraus, LLP, in the firm’s West Coast practice Waters, Kraus & Paul. Her practice focuses on class action cases, qui tam (whistleblower), and commercial litigation.

Monday, September 26, 2011

Retail Pharmacy Fraud

Pharmacies that fail to perform federally-mandated drug safety screening procedures or falsely certify compliance with federal and state professional standard requirements, may be liable for fraud under the False Claims Act. Pharmacists are not just robots paid to dispense drugs prescribed by doctors. As the only healthcare providers trained to understand the multitude of pharmaceuticals and their potential interactions, pharmacists are also paid to exercise their professional judgment and intervene to prevent potentially fatal drug interactions and allergic reactions by contacting prescribing physicians and/or counseling patients.

Federal and state healthcare programs pay pharmacies not just for a product--the prescription drug--but also for this service, known as drug utilization review or DUR. The pharmacy’s DUR responsibilities include screening of prescriptions for potential problems, maintaining records of patient medical histories and allergies, and offering to counsel patients about new prescriptions.

In billing government healthcare programs, pharmacies are often required to certify compliance with their DUR responsibilities and formulary restrictions on the dispensing of certain drugs. During the billing process, pharmacies also interact with point-of-sale or “POS” software systems developed by many government programs, including the Medicaid programs of most states. Using vast databases containing information about drugs, interactions, allergies and the medical/drug histories of program beneficiaries, these POS systems generate warnings or alerts for pharmacists about potential problems with the drugs that they are attempting to dispense and bill. The pharmacist is required to acknowledge each alert and indicate the action he/she has taken to resolve the problem, including contacting the prescribing physician, counseling the patient or otherwise exercising his/her professional judgment.

Pharmacies that knowingly override DUR alerts without performing the specified services, or falsely certify compliance with formulary restrictions, but nevertheless submit claims to government healthcare programs for payment, can be guilty of fraud or false claims actionable under the federal False Claims Act and its state-law counterparts.

WM. Paul Lawrence, II serves as of counsel to Waters & Kraus, LLP. His practice focuses on appellate, class action, and qui tam (whistleblower) litigation under the False Claims Act.

Monday, September 19, 2011

Bad Medicine in the False Claims Context

Improper Financial Ties Between Hospitals and Their Referring Physicians

On Friday, September 9, 2011, the Department of Justice announced that the United States has partially intervened in a False Claims Act lawsuit against Halifax Hospital Medical Center located in Daytona Beach, Florida, and Halifax Staffing, Inc.[1]  The case was initially filed in July 2009 by the current Director of Physician Services for Halifax Staffing.  A Second Amended Complaint, filed in February 2011, alleged that Halifax “
improperly admitted thousands of inpatients even though no medical necessity existed for the admissions and the Defendants have routinely paid excessive compensation, and provided illegal kickbacks, profit-sharing incentives, as well as compensation pooling, to physicians in violation of the Stark and Federal Anti-Kickback laws.”[2] 

The government has partially intervened with respect to allegations that Halifax violated the Stark law[3], which prohibits hospitals and other entities from submitting claims to Medicare for certain health care services referred by physicians with an improper financial relationship with the hospital or other entity.  Here, the U.S. alleges that “Halifax’s contracts with three neurosurgeons and six medical oncologists were improper, in part, because they either paid physicians more than fair market value, were not commercially reasonable or took into consideration the volume or value of the physicians’ referrals.”[4]

According to Tony West, Assistant Attorney General for the Civil Division of the Department of Justice, “Improper financial arrangements between hospitals and physicians threaten patient safety because personal financial considerations, instead of what's best for the patient, can influence the type of health care that is provided.” [5]

The government’s involvement in this case is part of the Health Care Fraud Prevention and Enforcement Action Team (HEAT), an initiative by the Justice Department and the Department of Health and Human Services to focus efforts on reducing and preventing Medicare and Medicaid financial fraud through enhanced cooperation. Robert E. O’Neill, U.S. Attorney for the Middle District of Florida, said that “[b]y bringing cases such as this one, we hope to ensure that precious health care resources are not being wasted as a result of questionable financial relationships between health care providers.”[6]

[1] U.S. Department of Justice, Office of Public Affairs, “U.S. Joined False Claims Act Lawsuit Against Florida’s Halifax Hospital Medical Center and Halifax Staffing, Inc.,” (Sept. 9, 2011), available at: (hereafter “DOJ Announcement”).
[2] U.S. ex rel. Baklid-Kunz v. Halifax Hosp. Med. Ctr., et al., Case No. 6:09-cv-1002 (M.D. Fla.) (Doc. 29).

[3] 42 U.S.C. § 1395nn, et. seq.

[4] DOJ Announcement.

[5] Id.

[6] Id.


Melanie Garner is an attorney at Waters & Kraus, LLP, in the firm's Baltimore office. She focuses her practice on toxic tort, product liability, and qui tam (whistleblower) cases.