True Facts About False Claims: MoFo's FCA Newsletter

Designed for busy in-house counsel and compliance professionals, this newsletter seeks to bring you up to speed on key federal and state False Claims Act (FCA) developments, with links to primary resources. Each quarter, we will provide key takeaways and discuss some of the most significant false claims topics. 

In this first newsletter of 2025, we answer the following questions:  What lessons do we draw from the Department of Justice (DOJ)’s recent announcement about its work in the FCA arena?  What are the key updates on the impact of Judge Mizelle’s holding that the FCA’s qui tam provisions are unconstitutional?  What is significant about recent government scrutiny of sponsored genetic testing programs?  What lessons should healthcare compliance programs draw from recent FCA settlements? The answers to this quarter’s questions – plus a discussion of a recent Walgreens shareholder suit and a settlement by the Massachusetts Attorney General – are here in our January 2025 FCA update.

Federal

DOJ Announces FY2024 FCA Statistics. On January 15, 2025, DOJ released its annual statistics detailing its work in the FCA arena over the past year, summarized in our recent client alert. They have a lot to show for their work, as DOJ recorded the second highest total number of FCA settlements and judgments in history – 558 – second only to the previous year’s record of 566 recoveries in FY2023. What’s more, FY2024 also saw the highest number of qui tam complaints ever filed in a single year (979) – that is an average of 18 new cases filed each week. This was a 38% increase from the prior year’s total and an indication that whistleblowers are driving FCA litigation as never before. In fact, of the $2.9 billion recovered by the government this past fiscal year, $2.4 billion arose from qui tam complaints. Whistleblowers received over $400 million as a result of the corresponding settlements and judgments.  Healthcare continues to drive the bulk of all activity – a result of DOJ’s focus on Medicare, the Anti-Kickback Statute (AKS), pandemic relief programs, and unnecessary services. Healthcare matters accounted for $1.67 billion of the $2.9 billion in recoveries. Notably, DOJ points out that this $1.67 billion does not include recoveries from state Medicaid programs, a reflection that the Department continues to work closely with state attorneys general to recover additional amounts for these state programs.  DOJ also highlights recoveries from military procurement fraud as well as its Civil Cybersecurity Fraud Initiative. Originally launched in 2021, this initiative uses the FCA to pursue government vendors and contractors that the government alleges knowingly:  (1) provide deficient cybersecurity products or services; (2) misrepresent their cybersecurity practices or protocols; or (3) fail to monitor and report cybersecurity incidents or breaches. The work done in this area is particularly important for healthcare and life sciences companies whose business includes beneficiaries of federal healthcare programs, which are subject to various security rules and regulations. While it is almost certain that the Department will continue to use the FCA to address these priorities, we await policy pronouncements from the new administration explaining how and where the FCA will be used to pursue any new or different priorities. 

DOJ Appeals Opinion Finding FCA’s Qui Tam Provisions Unconstitutional. As we discussed in our last newsletter, Judge Kathryn Mizelle of the U.S. District Court of the Middle District of Florida held in Zafirov ex rel. United States v. Florida Medical Associates, LLC that the FCA’s qui tam procedures violate Article II’s Appointments Clause by permitting “unaccountable, unsworn, private actors to exercise core executive power with substantial consequences to members of the public.”  Unsurprisingly, DOJ has appealed the decision to the Eleventh Circuit, arguing that relators are pursuing private interests and thus “not enforcing federal law in a manner inconsistent with [Article II].”  DOJ also intervened in a separate suit to defend the constitutionality of the FCA’s qui tam provisions, this one brought by a former CVS employee alleging that CVS engaged in fraudulent billing and whistleblower retaliation. CVS has filed an answer in the case contending that, per the holding in Zafirov, the FCA’s whistleblower provisions violate Article II. We are monitoring the matter to see whether the new administration will continue to advance this position. We previously commented that while some circuit courts, like the Ninth, have already addressed this argument, there are a number that have not resolved FCA Article II challenges, including the First, Second, Third, Fourth, Seventh, Eleventh, and D.C. Circuits. FCA defendants in these jurisdictions should strongly consider raising a constitutionality defense, citing the Polansky and Zafirov rulings, if DOJ declines to intervene and the qui tam relator continues to pursue the FCA suit. Look for our client alert when the Eleventh Circuit takes action in Zafirov and in the event the issue advances in any of the circuits.

HHS-OIG Issues Favorable Advisory Opinion on Sponsored Genetic Testing While DOJ Takes Enforcement Action. The Department of Health & Human Services, Office of Inspector General (HHS-OIG) issued favorable opinions in April 2022 and again in December 2024 (Advisory Opinion 22-06 and Advisory Opinion 24-12, respectively), addressing potential AKS liability for companies offering sponsored genetic testing for rare diseases. While HHS concluded that both arrangements involved genetic testing that constituted remuneration, HHS found a sufficiently low risk of fraud and abuse because each arrangement was narrowly tailored with sufficient safeguards to prevent the arrangement from being used as a marketing or sales tool. Since 2022, DOJ has brought enforcement actions against several rare disease companies engaged in sponsored genetic testing. Most recently, on November 15, 2024, QOL Medical, LLC and its CEO agreed to pay $47 million to resolve allegations that they provided illegal kickbacks in the form of free Carbon-13 breath testing services to induce claims for the company’s drug, which is used to treat a rare genetic condition that makes it difficult to digest sucrose (table sugar).  Under this arrangement, QOL Medical received test results from the analyzing laboratory, including the name of the healthcare provider ordering the test, and distributed this information to its sales force for use in its marketing program.  Prosecutors alleged that this created improper inducements to generate business for the company’s drug.  As we pointed out in a related client alert, both this recent enforcement activity and the second Advisory Opinion make it clear that government regulators are scrutinizing these programs closely. Sponsored genetic testing remains permissible – and very valuable to patients. We continue to monitor these developments to provide clients with the nuanced advice required.

Healthcare Company Pays $5.25 Million to Settle Kickback Allegations Involving Meals, Sporting Tickets, and Other Gifts. On December 2, 2024, DOJ announced a $5.25 million settlement with American Health Imaging, Inc. (AHI) and its former CEO to resolve allegations that they violated the FCA by (1) providing physicians with meals, tickets to sporting events, and other gifts to induce physicians to refer diagnostic scans to AHI’s independent diagnostic testing facilities; and (2) entering into above fair market value agreements to induce physicians to refer scans. The inducements included tickets to the SEC football championship game; tickets to concerts; outings to nail salons; fishing trips; happy hours; sponsorships of “open houses” at physicians’ offices; and gifts of alcohol, gas cards, and free scans to generate referrals from physicians. Healthcare companies should continue to ensure that they have appropriate compliance programs in place to prevent the use of unlawful inducements to obtain referrals from medical professionals.

Southern California Health Clinics Pay $15 Million to Settle Kickback Allegations Involving Unlawful Referrals. On December 26, 2024, DOJ announced a $15 million settlement with six health clinics, a laboratory, and their owners involving allegations that they submitted false claims to Medicare and Medi-Cal involving illegal kickbacks and self-referral of patients. The government alleged that the clinics paid kickbacks to marketers to refer patients to the clinics and made rental payments to benefit third-party clinics in exchange for patient referrals. The government also alleged that the clinics referred patients to the laboratory for testing in violation of the Stark Law. Healthcare compliance programs should be paying special attention to ensure that they are not engaging in any improper patient referrals. 

State

Shareholders Sue to Inspect Walgreens’ Books and Records After $107 Million FCA Settlement. Walgreens and DOJ entered into a $106.8 million settlement in September 2024 to resolve allegations that the company billed federal healthcare programs for prescription drugs that were never dispensed to patients (and were restocked and resold), and shareholders have now sued the company in a bid to investigate any purported wrongdoing, mismanagement, or breaches of fiduciary duty by the board or company officers stemming from this conduct. The plaintiffs seek to inspect company books and records, including minutes of all meetings of the board of directors from 2009 to the present. Shareholders initially issued a demand letter to the company pursuant to Title 8, Section 220 of the Delaware Code (which allows stockholders to inspect corporate books and records if they can demonstrate a proper purpose for doing so). Counsel for Walgreens rejected the 220 demand, prompting shareholders to file suit in December 2024. The shareholder suit against Walgreens is the latest reminder that the implications of FCA-related liability can extend beyond qui tam suits and government enforcement to include shareholder litigation.         

Physician Group Pays Massachusetts Attorney General $2 Million to Settle False Billing Claims. On December 19, 2024, the Massachusetts Attorney General announced a $2 million settlement with SaVida Health PC involving allegations that the group overcharged for visits and billed for tests that were not medically necessary. The government alleged that the group upcoded evaluation and management office visits and billed for unnecessary confirmatory urine drug tests. These billings violated the Massachusetts False Claims Act and the Massachusetts Medicaid False Claims Statute. As part of this settlement, SaVida was also required to hire an independent compliance monitor. The state settlement calls to mind a series of settlements between the U.S. Attorney’s Office for the District of Massachusetts and urine testing laboratories, including Ethos Laboratories (2024) and MD Labs (2022).

Morrison Foerster

Morrison Foerster has a multidisciplinary team focused on FCA matters, which includes former high-ranking DOJ officials, federal and state prosecutors, senior government regulators, White House and FBI counsel, government contracts specialists, privacy experts, and veteran defense lawyers, among others.  We focus on counseling clients through all phases of matters related to the FCA, including proactive compliance counseling, due diligence, internal investigations, government investigations, and litigation.  The breadth of our experience allows us to understand how law enforcement agencies choose which FCA cases to pursue, anticipate prosecutors’ and regulators’ next steps, plan and execute efficient and thorough investigations, and quickly pinpoint key issues identifying the best path forward from the outset.