2016 False Claims Act Enforcement Summary

The U.S. Department of Justice’s enforcement efforts for 2016 fell short of those of the year prior. In 2016, there were 106 announced settlements against health care providers with recoveries amounting to approximately $1.14 billion compared to total quantity of settlements and settlement dollar figures of 2015: 195 settlements and recoveries of nearly $2 billion.

This is part 1 of Gibson Dunn’s 2016 DOJ and HHS Enforcement Settlement Summary. To see its webcast on Hot Topics in Fraud and Abuse Enforcement Involving Health Care Providers, go to: http://www.gibsondunn.com/publications/Pages/Webcast-Hot-Topics-in-Fraud-and-Abuse-Enforcement-Involving-Health-Care-Providers.aspx

The ratio of settlements by provider type occurred in the usual proportions with hospitals with 33 settlements, clinics and single providers with 31 settlements leading by a wide margin (more than 60 percent of the 106 resolutions) the other provider types measured to include; skilled nursing and rehabilitation services, home health providers, pharmacies, billing services and other medical services.

While the number of cases are almost equal between hospitals and clinics and single providers, the amount recovered is disparate with almost $492 million was recovered from hospitals, only $93 million was collected from smaller clinics and single providers. Skilled nursing and rehabilitation services providers were responsible for more recovered dollars ($318 million) with only 11 settlements.

Of note is the contrast in 2015 numbers. While in 2016 the number of settlements between hospitals and clinics and single providers were almost equal, in 2015, hospital settlements accounted for 121 to 27 for clinics and single providers. This is evidence of success of the DOJ’s 2015 nationwide sweep of hospitals.

Taken directly from the Gibson Dunn report is the breakout detail of False Claims Act settlements with providers by allegation type.

Not surprisingly, allegations relating to medical necessity far outpaced other theories of liability. What is more interesting is the significant number of settlements based on allegations that services were never provided–in the prior two years, this theory has provided the basis for fewer settlements than both the AKS and the Stark Law. Yet, in 2016, services-not-provided settlements accounted for more total settlements than alleged AKS and Stark Law violations combined.

Nevertheless, the AKS featured in the largest FCA settlement involving a provider in 2016. On September 30, 2016, Tenet Healthcare Corporation and certain of its subsidiaries entered into a civil Settlement Agreement with the United States and others to resolve allegations that four hospitals located in the southeastern United States entered into referral source arrangements in violation of various federal and state laws, including federal and state anti-kickback statutes and false claims acts.[1] Under the Settlement Agreement, Tenet agreed to pay $368 million, plus interest, to the United States, the State of Georgia, and the State of South Carolina.[2] A Tenet subsidiary simultaneously entered into a Non-Prosecution Agreement with the DOJ’s Criminal Division and the U.S. Attorney’s Office for the Northern District of Georgia; the Agreement, inter alia, requires Tenet to retain an independent compliance monitor to assess, oversee, and monitor Tenet’s compliance with the terms of the Agreement.[3] As contemplated by the Settlement Agreement, the DOJ also filed a criminal Information against two Tenet subsidiaries, alleging that each entity conspired to violate the AKS and defraud the United States.[4] The two entities entered into Plea Agreements, under which they agreed to plead guilty and to pay forfeiture money judgments totaling approximately $146 million.[5]

The second largest provider settlement in 2016 involved Life Care Centers of America, an operator of skilled nursing facilities, and its owner, Forrest Preston. The settlement resolved allegations that Life Care systematically billed Medicare and TRICARE for rehabilitation therapy services that exceeded the level of care beneficiaries actually required. In particular, the government alleged that Life Care adopted policies and practices to place as many patients as possible in the group that receives the highest level of rehab therapy reimbursed by Medicare Part A. Under the terms of the settlement, Life Care and Preston agreed to pay the government $145 million; two former Life Care employees, who brought suit under the FCA’s qui tam provisions, received nearly $30 million of that sum.[6]

The Life Care settlement first made headlines–including in our 2014 Year-End Health Care Compliance and Enforcement Update – Providers (“2014 Year-End Update”) –when the district court decided to permit the government to rely on statistical sampling and extrapolation to support FCA liability.[7] That decision, coupled with another decision issued the same day denying Life Care’s motion to exclude as unreliable the testimony of the government’s sampling expert,[8] allowed the government to extrapolate from a relatively small set of claims–just 400 total–to the entire universe of Medicare claims submitted by LifeCare, a whopping 54,396 potentially at-issue claims. The case is a sobering reminder of the potentially expansive liability in nationwide cases against providers, especially in light of the FCA’s per-claim penalties and treble damages.

The Life Care settlement is also noteworthy as an illustration of the government’s application of the principles of individual accountability set out in the Yates Memorandum, which was issued in September 2015.[9] Before the Yates Memorandum, relators and the government generally focused their attention, at least in civil cases, on corporations rather than individuals (based in part on companies’ greater ability to pay settlements). This pre-Yates Memorandum practice was evident in the management of the Life Care litigation at its earliest stages: although relators originally named several individuals (including Preston) as defendants, they were voluntarily dismissed from the litigation in October 2014.[10]

Post-Yates, however, the government changed course by bringing a separate civil action against Preston.[11] The government’s complaint against Preston was filed just seven months after the Yates Memorandum (and six months before the settlement was announced). The inclusion of Preston in the settlement gives at least the appearance of individual accountability, by holding Preston and Life Care jointly liable for the full settlement amount.[12] Although insurance coverage and director indemnification policies may well ensure that Preston does not suffer any direct financial losses, the collateral consequences–including reputational harm–may well satisfy the government’s expectations regarding individual accountability in the civil context.

[1] Tenet Healthcare Corp., Current Report (Form 8-K), at 2 (Sept. 30, 2016).

[2] Id.

[3] Id.

[4] Id. at 3.

[5] Id.

[6] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Life Care Centers of America Inc. Agrees to Pay $145 Million to Resolve False Claims Act Allegations Relating to the Provision of Medically Unnecessary Rehabilitation Therapy Services (Oct. 24, 2016), https://www.justice.gov/opa/ pr/life-care-centers-america-inc-agrees-pay-145-million-resolve-false-claims-act-allegations.

[7] United States ex rel. Martin v. Life Care Ctrs. of Am., Inc., 114 F. Supp. 3d 549, 565–70 (E.D. Tenn. Sept. 29, 2014).

[8] United States ex rel. Martin v. Life Care Ctrs. Of Am., Inc., No. 1:12-cv-0064, 2014 WL 4816006, at *1 (E.D. Tenn. Sept. 29, 2014).

[9] For a robust discussion of the DOJ policy set out in the Yates Memorandum, please see our September 11, 2015 Client Alert on the subject.

[10] Order, United States ex rel. Martin v. Life Care Ctrs. of Am., Inc., No. 1:12-cv-0064 (E.D. Tenn. Oct. 14, 2014), ECF No. 141.

[11] Complaint, United States v. Preston, No. 1:16-cv-00113 (E.D. Tenn. May 3, 2016), ECF No. 1.

[12] Settlement Agreement, United States v. Preston, No. 1:16-cv-00113 (E.D. Tenn. Oct. 27, 2016), ECF No. 13.
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