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.

Monday, September 12, 2011

What Distinguishes Medical Judgment from Fraud?

Many qui tam cases involve decisions by physicians—a decision to certify a patient as eligible for hospice, a decision to order services that are allegedly medically unnecessary, a decision to code a procedure a certain way. In all of these circumstances, defendants will argue that allegations that such conduct is fraudulent are not actionable because differences in scientific opinion, methodology, and judgments cannot support claims under the False Claims Act.

Recently, the U.S. Attorney’s office debunked such arguments in a Statement of Interest filed in U.S. ex rel. Wall v. Vista Hospice Care, Inc., Case No. 3-07-cv-0604 (N.D. Tex.). In the Statement of Interest, the Government argued that where a physician acts with deliberate indifference or reckless disregard of objective facts, a fraud claim can lie. Specifically, in the hospice context, if a physician certifies a patient for hospice care without sufficient information to make the certification or with deliberate indifference or reckless disregard for whether the patient actually meets the objective criteria for such certification, the certification and claims for payment of that patient’s hospice care are false. As the Government noted:

Hospice care provided to a patient who does not meet objective medical criteria for terminal illness can be false or fraudulent under the FCA. A defendant cannot defeat FCA allegations simply due to the existence of a physician certification of terminal illness when there is evidence that the provider knew or should have known such a patient was not terminally ill.

This reasoning has equal force in the other circumstances described above:  where there are allegations that a physician ordered unnecessary procedures or services, or deliberately upcoded procedures, so long as there is a good faith allegation that the physician knowingly acted in direct contradiction to objective facts, an FCA claim should lie. The key is to be able to show that the physician’s conduct is not being challenged as erroneous, but as fraudulent.


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, September 5, 2011

Government Contractors Who Fail to Pay Davis-Bacon Prevailing Wages are Liable Under the False Claims Act

The Davis-Bacon Act requires that companies with contracts with the federal government pay workers the prevailing wage of the area in which the work is performed. The Department of Labor is responsible for determining the prevailing wage. Federal regulations provide that contractors submit weekly payroll certifications, including certifications for all their subcontractors. Additionally, Davis-Bacon and federal regulations provide that government contractors are responsible for ensuring that subcontractors pay Davis-Bacon wages.  

Cases against contractors have been brought under the False Claims Act. United States ex rel. Wall v. Circle C., 700 F.Supp.2d 926 (M.D.Tenn. 2010) is an important case for both its holdings in regards to subcontractors and for its holding in regards to calculating damages. In this case the defendant, Circle C, was awarded a contract at Fort Campbell, an Army base in Kentucky. An employee who worked for a subcontractor of Circle C alleged that Circle C violated the False Claims Act by submitting false certifications to the government that it complied with Davis-Bacon when the subcontractor was not paying prevailing wages. The employee brought a whistleblower action on behalf of the United States in the Middle District of Tennessee. The United States brought a motion for summary judgment and Circle C moved to dismiss and for a judgment on the record.  

Ultimately, the court ruled in favor of the United States and awarded treble damages. According to the Court, Circle C did not take measures to ensure that its subcontractor, Phase Tech, was paying prevailing wages to its electricians. The Court found that Circle C submitted false payroll certifications by failing to list that Phase Tech had performed the vast majority of the electrical work on the contract. Additionally, Circle C’s certifications did not match Phase Tech records. At the time that Circle C submitted its certifications the prevailing wage for an electrical worker in Kentucky was $19.19 an hour with $3.94 in fringe benefits. Instead of this prevailing wage, Circle C’s subcontractor had paid some of its electrical workers $12-$16 an hour. The United States paid Circle C a total of $553,807.71 for the electrical work on the project that was performed by its subcontractor. Although Circle C argued that its damages should be the difference between the prevailing wage and the wages it subcontractors actually paid, the court refused to discount the damages in this way. The court entered a judgment of $1,661,423.13 against Circle C, which included treble damages but no statutory penalties.  

The decision against Circle C is important for several reasons. It affirms that contractors have a duty to ensure that subcontractors pay Davis-Bacon wages. In its decision the court noted that defendant did not have a contract with their subcontractor that provided that the subcontractor would comply with Davis-Bacon and did not attempt to inform the subcontractor of their duty to comply with Davis-Bacon. The court affirmed that defendants will not escape False Claims Act liability by willfully remaining ignorant of whether their subcontractors comply with Davis-Bacon. Most importantly, it provides that the measure of damages is not just the difference between wages actually paid and prevailing wage. Instead, damages are calculated by the total amount of prevailing wages that should have been paid. This is important because if defendants were not held accountable for the entire amount of their fraud, there would be a greater temptation to risk paying less than Davis-Bacon wages. Given that contractors may also be responsible for paying treble damages and other statutory penalties for their fraud, the False Claims Act is a powerful tool for ensuring that contractors pay Davis-Bacon wages on federal contracts.    

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.