Health care fraud remains a key focus for DOJ

Last week, the U.S. Department of Justice announced that Medtronic, Inc. would pay nearly $10 million to settle a qui tam lawsuit involving allegations of health care fraud.

In the 130-page complaint, which was unsealed in connection with the settlement, the relators alleged that Medtronic violated the federal False Claims Act, 31 U.S.C. Section 3729 et seq. (the "FCA"), and various state laws by providing kickbacks through cash payments, trips, meals, gifts and entertainment to doctors. The payments were purportedly made through a series of sales representatives, managers, and other executives. The doctors allegedly returned the favor by using the company's defibrillators and pacemakers.

Medtronic did not admit that any of the alleged payments were improper. The case arose out of claims made by a former employee who received $1.73 million in the settlement. The investigation and settlement were handled by the DOJ's Civil Division, the U.S. Attorney's Office for the Eastern District of California, and the Office of the Inspector General of the federal Department of Health and Human Services.

News of this settlement is yet another in a series of examples of the DOJ's continuing efforts to zero in on health care fraud. Since January 2009, the government has recovered more than $19.2 billion in connection with FCA matters. And, the government's focus is not just on obtaining large civil settlements. Just last month, the DOJ announced that through its Medicare Fraud Strike Force efforts, the government filed charges against 90 individuals regarding allegations that they engaged in Medicare fraud. The charges, stemming from a nationwide crackdown that involved federal operations in six cities, allege that the group submitted approximately $260 million in false claims made to the government.

It is clear that the FCA is a potent weapon in the DOJ's arsenal. The most common FCA claims arise when a person or entity submits a false claim for payment to the federal government. Other common claims involve making or using a false record to support a claim for payment. The statute also prohibits other acts, including conspiracy to violate the FCA. The scope of the statute is broad: it has consistently been interpreted as extending to all types of fraud, not merely facially false or fraudulent claims for payment.

To initiate a case, typically a whistleblower (also known as a qui tam relator) files a complaint under seal in federal court. The reason the case is filed under seal is to provide the DOJ with an opportunity to investigate the claims and evaluate if they have merit. The relator is required to serve the government with a copy of the complaint and written disclosure of substantially all of the material evidence and information the relator has gathered in connection with the complaint. The case must remain under seal for at least 60 days, and courts routinely grant extensions of time as the investigation proceeds.

After its investigation, the DOJ can then intervene in the matter and lead the prosecution of the case, decline to intervene (leaving the relator free to pursue the claims on his or her own), or move to dismiss the case. If the DOJ decides to intervene, it may file its own complaint or simply amend the complaint already on file. Where no whistleblower has filed a suit under seal, the government can initiate an action on its own.

In terms of penalties, the statute provides for triple damages awards in addition to civil penalties for violations. As a result, a company's exposure (or cost to settle a case) can get quite high very quickly. Because the FCA provides that a relator gets to share in the government's recovery, employees have a significant incentive to identify and expose fraud in organizations. The FCA is also notable for its extended statute of limitations: claims may be brought either within six years of the alleged fraud, or within three years of when the material facts were or should have been known, although claims based on events occurring more than 10 years prior are barred.

Companies that deal with the federal government - particularly in the health care sector - must ensure that they have proper compliance and anti-corruption programs to deter and prevent violations of the law. Having those types of programs in place and enforced also assists companies that do run into trouble, as the DOJ considers the type, size, and scope of such programs in making charging and settlement decisions. Developing, updating, and enforcing a robust corporate compliance program cannot stop every potential violation of the law, but is an indispensable aspect of running a modern business.