The False Claims Act

Since 1987, False Claims Act lawsuits have returned over $55 billion to federal and state Governments. Of this sum, over $39 billion has been recovered to the federal government as a consequence of civil settlements and judgments.  An additional $7 billion has been returned to the states as a consequence of False Claims Act-initiated Medicaid settlements, and an additional $9 billion has been collected by the federal government in criminal fines associated with False Claims Act-initiated actions.

Failed Compliance Program Results in Massive FCA Liabilities


GlaxoSmithKline pled guilty to several criminal misdemeanor charges and paid $3 billion to settle a series of False Claims Act cases brought to the U.S. Government by six whistleblowers and their six law firms. GSK was charged with illegally promoting nine different prescription drugs, including the antidepressants Wellbutrin and Paxil, the diabetes medication Avandia, the pulmonary drug Advair, and the anti-nausea medication Zofran, as well as five other drugs: Imitrex, Lamictal, Lotronex, Floven, and Valtrex. GSK was charged with pervasive illegal conduct that continued for more than a decade, including paying kickbacks, doctoring and fabricating scientific research and articles, bribing doctors with vacations to Hawaii and Puerto Rico, and creating marketing kits packed with unsubstantiated claims.  This case was settled in July of 2012, more than a decade after the whistleblowers in this case reported the frauds to management and and after an internal investigation by GSK management verified the allegations.  The company took no action to stop the fraud, however, choosing hefty profits over compliance and patient safety.

Kickbacks as a Business Plan


Pfizer paid a total of $2.3 billion to settle a series of whistleblower-initiated False Claims Act cases covering fraudulent sales and marketing practices covering a variety of drugs. Of the $2.3 billion total paid, $1.3 billion was paid as a criminal fine for kickbacks and off-label marketing. Of the $1 billion collected as part of a civil settlement, $668.5 million went to the federal government and $331.5 million to the states.  Of the $668.5 million that went to the federal government, a total whistleblower award of $102.4 million was split unequally among six whistleblowers and nine law firms. The drugs involved were Bextra (an anti-inflammatory drug), Geodon (an anti-psychotic drug), Lipitor (a cholesterol drug), Norvasc (an anti-hypertensive drug), Viagra (an erectile dysfunction drug), Zithromax (an antibiotic), Zyrtec (an antihistamine), Zyvox (an antibiotic), Lyrica (an anti-epileptic drug), Relpax (an anti-migraine drug), Celebrex (an anti-inflammatory drug), and Depo-provera (a form of birth control). The case was settled in July of 2009.

Off-label Marketing of Depakote

Abbott Laboratories

In May of 2012, Abbott Laboratories agreed to pay over $1.5 to settle four False Claims Act qui tam cases alleging the company promoted the off-label use of Depakote, an anti-seizure drug.  The settlement includes a $700 million criminal fine, and an $800 million civil settlement, with the federal government receiving $560,851,357 of this civil sum, and $239,148,643 being parsed out to the states to satisfy their Medicaid claims (including recoveries made under various state False Claims Act laws).

Hospital Upcoding, Bill Padding, and Kickbacks

HCA, Columbia HCA, Quorum

The largest for-profit hospital corporation in the U.S. has operated under various names and settled three large whistleblower-initiated False Claims Act cases totaling more than $1.4 billion.

In October of 2000, Quorum Health Group, a wholly owned subsidiary of HCA The Healthcare Company (formerly known as Columbia HCA), agreed to pay the United States $95.5 million to settle a whistleblower-initiated case under the False Claim Act, alleging the company systematically upcoded and price-gouged Medicare and Medicaid.

In December 2000, HCA The Healthcare Company (formerly known as Columbia HCA), pled guilty to criminal conduct and agreed to pay more than $840 million in criminal fines, civil penalties, and damages for unlawful billing practices. Of this amount, $731,400,000 was recovered under the False Claims Act. Under the settlement agreement, HCA's payment resolved five allegations regarding the manner in which it billed the U.S. government and the states for health care costs. HCA's frauds on the taxpaying public included: billing for lab tests that were not medically necessary and not ordered by physicians, "upcoding" medical problems in order to get higher reimbursements for more serious medical issues, billing the government for advertising under the guise of "community education," and billing the government for non-reimbursable costs incurred in the purchase of home health agencies around the country. 

In June 2003, HCA Inc. (formerly known as Columbia/HCA and HCA The Healthcare Company) agreed to pay the United States $631 million in civil penalties and damages arising from false claims submitted to Medicare and other federal health programs. This settlement resolved HCA's civil liability for false claims including cost report fraud, and the payment of kickbacks to physicians.  In a separate administrative settlement with the Centers for Medicare & Medicaid Services (CMS), HCA agreed to pay an additional $250 million to resolve overpayment claims arising from its cost reporting practices.

Off-label Marketing of Zyprexa

Lilly Pharmaceuticals

In January of 2009, Eli Lilly agreed to pay over $1.3 billion to resolve Federal, state and criminal charges in relation to the off-label marketing of the drug Zyprexa.  Of this sum, $438 million went to satisfy federal False Claims Act charges, $361 million was divided among the states to settle their Medicaid claims (including state FCA claims), and $515 million was paid as a criminal fine.

Zyprexa is one of several atypical anti-psychotic drugs illegally marketed to both children and nursing home patients through a wide assortment of frauds and kickbacks directed to doctors, and hospital and nursing home administrators. Other recoveries concering atypical anti-psychotic drug cases under the False Claims Act include Abilify ($515 million, 2007), Seroquel ($520 million, 2009), and Risperdal (three state judgements total more than $1.6 billion, and a national settlement in 2012 is expected to exceed $2 billion).

Repeat Players


The company now known as Tenet Healthcare is a repeat player fraudster.

In 1994, under the name National Medical Enterprises, the company agree to pay $379 million in criminal fines, civil damages, and penalties to settle a False Claims Act case in which the company was allegedly paying kickbacks and engaging in fraud at NME psychiatric and substance abuse hospitals in more than 30 states.  

Following payment of this record health care fraud settlement, National Medical Enterprises decided to change its name to "Tenet" to reflect its new ethical tenets. 

At almost the same time, company managers began to devise a new fraud scheme based on upcoding for increased Medicare “outlier” payments. 

In July 2006, Tenet Healthcare agreed to pay the federal government $900 million for billing violations that include manipulation of outlier payments to Medicare, as well as for kickbacks, upcoding, and bill padding.  The DoJ press release noted that the latest settlement was based on the company's ability to pay -- another way of saying Tenet allegedly stole far more money than was recovered.

Mortgage Insurance Fraud

Bank of America, Citigroup, JPMorgan, Wells Fargo

Six False Claims Act mortgage fraud settlements were announced on a single day in March of 2012.  The largest case, against Bank of America and its Countrywide subsidiary, was settled for $1 billion.  Other announced cases included a recovery of $158 million against Citigroup; a recovery of $95 million against Bank of America, JPMorgan, Wells Fargo, and Citigroup; a recovery of $45 million against JPMorgan Chase; a recovery of $75 million against Bank of America; a recovery of $6.5 million against Bank of America, and; a recovery of $6.19 million against JPMorgan Chase.

Prostate Cancer Drug Pricing Fraud

TAP [Taketa-Abbott Pharmaceutical] Pharmaceutical Products Inc.

In October of 2001, TAP Pharmaceutical Products Inc. agreed to pay $875 million to resolve criminal charges and civil liabilities in connection with fraudulent drug pricing and marketing of Lupron, a drug sold for the treatment of prostate cancer. Of this amount, $559,483,560 was recovered under the False Claims Act. In addition, TAP pled guilty to a conspiracy to violate the Prescription Drug Marketing Act and paid a $290 million criminal fine, the largest criminal fine ever paid in a health care fraud prosecution up to that time. Under the Lupron scheme, TAP allegedly gave doctors kickbacks by providing free samples with the knowledge that the physicians would bill Medicare and Medicaid $500 per dose. At the time the Lupron fraud was discovered, Lupron accounted for 10% of the money spent on prescription drugs under Medicare Part-A. As part of the settlement, TAP entered into what prosecutors described as a "sweeping" corporate integrity agreement. 

The TAP fraud had a parallel at AstraZeneca, where that company allegedly paid kickbacks and price-gouged for Zoladex, a competing prostate cancer drug.  AstraZeneca settled their whistleblower-initiated False Claims Act lawsuit for Zoladex for $335 million in June of 2003.

Manufacturing Fraud


In October of 2010, GlaxoSmithKline agreed to pay $750 million to settle a case involving systematic deceit related to product contamination and dosage irregularities at GSK's plant in Cidra, Puerto Rico.  Drugs affected include Paxil, Avandia, Avandament, Coreg, Bactroban, Abreva, Cimetidine, Compazine, Denavir, Dyazide, Thorazine, Stelazine, Ecotrin, Tagamet, Relafen, Kytril, Factive, Dyrenium, and Albenza.  Of the $750 million settlement, $600 million was paid as part of a civil recovery, and $150 million was levied as a criminal penalty.

Off-Label Marketing of Human Growth Hormone


In October of 2005, Serono agreed to pay $704 million to settle a whistleblower-initiated False Claims Act case involving Serostim, a human growth hormone product used to fight AIDS-related wasting. The charges involved kickbacks to doctors for prescribing Serostim, kickbacks to specialist pharmacies for recommending Serostim, illegal off-label marketing of the drug, and non-FDA approved diagnosis equipment designed to spur more Serostim prescriptions.  Serostim cost as much as $20,000 for a three-month regime. Of the total $704 million settlement, $567 million was earmarked to settle federal and state civil claims ($305 million federal), with $136.9 million paid as a related criminal fine.

Nominal Drug Pricing


In January of 2008, Merck settled the very first nominal pricing fraud case in which the company was accused of taking kickbacks and violating Medicaid best price regulations for Vioxx (an arthritis drug), Zocor (a cholesterol drug), Pepcid (an acid-reflux drug), Cozaar (a hypertensive medication), Fosamax (a bone loss drug) Maxalt (a migraine medication), and Singulair (an asthma medication). 

Nominal drug pricing fraud occurs when a company gives a for-profit hospital a medication at a "nominal price" (a greater than 90% discount) in order to get that hospital to fill their treament needs for a health care problem with their specific brand of drugs.  The violation occurs when the drug company ties the discount to a specific prescription metric, i.e. "If you fill 90 percent of your gastric reflux needs with our medication, then we will give you a greater than 90 percent discount." 

Drug companies typically give nominal price discounts for long-term use drugs that are used to treat such medical conditions as as arthritis, mental dysfuction, acid reflux, high cholesterol, hypertension, bone loss, etc.  As one fraud expert noted, "This is drug dealer economics, where the first shot is free and it becomes more expensive after that."  The expectation of a the drug company is that when the patient leaves the hospital, he or she will have a prescription in-hand for the deeply discounted drug which will be more expensive, and not necessarily any better, than what the doctor might otherwise have prescribed if a nominal pricing scheme had not been constructed in order to influence the prescribing doctor's decision.

A nominal pricing fraud case against Wyeth for kickbacks and violation of Medicaid's best-price regulation as it relates to the sale and promotion of Protonix, an acid-reflux drug, has been joined by the U.S. Department of Justice, but has not yet been settled or ajudicated.

Bundling as Kickbacks

Abbott Labs

In July of 2003, a unit of Abbott Laboratories, Inc. pled guilty to obstructing a criminal investigation and defrauding the Medicare and Medicaid programs and agreed to pay $400 million to resolve civil claims. In addition, a subsidiary of Abbott Labs, CG Nutritionals, Inc., agreed to a criminal fine of $200 million. The Abbott/CG Nutritionals scheme involved the sale of enteral products which pump special foods into the stomachs and digestive systems of patients who, because of disease or some other disorder, are not able to ingest and digest meals in a normal manner.

City and State Medicaid Billing

New York State and New York City

In July of 2009, New York State and New York City agreed to pay a total of $540 million to resolve civil liabilities in connection with improperly billed pre-school and older students’ speech, physical and occupational therapy, psychological counseling and transportation over a seven-year period.  New York State will pay approximately $331,879,000 and allow the federal government to retain approximately $108,000,000 of nearly $303,000,000 it withheld for questionable billing during a seven-year period ending in December 2008. New York City will pay $100,000,000 of the total sum.

Off-label Marketing of Seroquel


AstraZeneca agreed to pay $520 million to settle a whistleblower-initiated False Claims Act case charging the company with off-label marketing of the atypical anti-psychotic drug Seroquel.  In this settlement, the federal government will receive $302 million, and the states will receive $218 million.

Seroquel is one of several atypical anti-psychotic drugs illegally marketed to both children and nursing home patients through a wide assortment of frauds and kickbacks directed to doctors, hospital and nursing home administrators. Other recoveries concerning atypical anti-psychotic drugs under the False Claims Act include Abilify ($515 million, 2007), Zyprex ($1.3 billion, 2009), and Risperdal (three state judgements total more than $1.6 billion, and a national settlement in 2012 that is expected to exceed $2 billion).

Off-label Marketing of More Than 50 Drugs

Bristol Myers Squib

In September of 2007, Bristol-Myers Squibb agreed to pay $515 million to settle allegations brought in seven whistleblower-initiated cases (six in Boston and one in Florida) involving pricing and promotional activities (including kickbacks to doctors) for more than 50 drugs, including 13 drugs with combined 2007 sales of $10.7 billion -- a total of 69 percent of Bristol-Myers' 2007 pharmaceutical revenue.  Drugs included in this settlement include the blood thinner Plavix, the antipsychotic Abilify, the cholesterol treatment Pravachol, the cancer therapy Taxol, and the antidepressant Serzone.  Of the $515 million, approximately $328 million will be paid under the Federal False Claims Act, with the states getting a total of $187 million to satisfy their Medicaid claims.

Kickbacks for Blood Tests and Nutritional Therapy

Fresenius Medical Care of North America (National Medical Care)

In January of 2000, Fresenius Medical Care of North America, the world's largest provider of kidney dialysis products and services, agreed to pay the United States $486 million to resolve a sweeping investigation of health care fraud at National Medical Care, Inc. (NMC), a kidney dialysis subsidiary owned by Fresenius. Of this amount, $385,000,000 was recovered under the False Claims Act. Three NMC subsidiaries also pled guilty to three separate conspiracies and were levied fines of $101 million. Fresenius also entered into a corporate integrity agreement with the U.S. Department of Health and Human Services. The Fresenius/NMC case involved fraudulent and fictitious blood testing claims by LifeChem, Inc., NMC's clinical blood testing laboratory, kickbacks to dialysis facilities to obtain blood testing contracts for LifeChem, and fraudulent claims submitted to Medicare for intradialytic parenteral nutrition (IDPN), a nutritional therapy provided to patients during their dialysis treatments.

Off-label Marketing of Narcotic Lollipops


In September of 2008, Cephalon paid $425 million to settle a whistleblower-initiated False Claims Act case in which the company was accused of off-label marketing the narcotic lollipop Actiq (fentanyl citrate), as well as off-label marketing Gabitril (an epilepsy medication) and Provigil (a narcolepsy medication).  Cephalon paid $375 million to settle civil charges, and an additional sum of $50 million was paid to settle criminal charges.  Though Actiq is a controlled substance and is 80 times more potent than morphine, it is only FDA-approved for cancer pain.  Nonetheless, sales analysis showed that more than 80% of the patients who used the drug didn't have cancer, and that Cephalon was actively promoting the drugs to dentists, neurologists, and even sports doctors.

Renal Care Fraud

Gambro Healthcare

In December of 2004, Gambro Healthcare agreed to pay $310.5 million to resolve civil liabilities stemming from alleged kickbacks paid to physicians, false statements made to procure payment for unnecessary tests and services, and payments made to Gambro Supply, a sham durable medical equipment company. The settlement also required Gambro to allocate $15 million to resolve potential liability with various state Medicaid programs. As part of the settlement, Gambro Healthcare also entered into a comprehensive Corporate Integrity Agreement. The Gambro Supply Corporation, a wholly-owned subsidiary of Gambro Healthcare, agreed to plead guilty to criminal felony charges; admit to execution of a healthcare fraud scheme; pay a $25 million fine; and be permanently excluded from the Medicare program.

Medicaid Best Price Fraud


In July of 2004, Schering-Plough, a major pharmaceutical manufacturer, agreed to plead guilty to fraud in the pricing of Claritin sold to the Medicaid program. The settlement agreement included a criminal fine of $52.5 million, $117 million to settle state claims, and nearly $176 million to settle federal False Claims Act claims.

Defective Spy Satellite

Northrop Grumman / TRW

In April of 2009, Northrop Grumman agreed to pay $325 million to settle a False Claims Act lawsuit that alleged TRW (now owned by Northrop) made defective parts for spy satellites that resulted in serious malfunctions and expensive fixes, all charged to U.S. taxpayers. 

Upcoding Services and Billing for Unallowed Costs


In December of 2004, HealthSouth Corporation, the nation's largest provider of rehabilitative medicine services, agreed to pay the United States $325 million to settle allegations the company systematically defrauded Medicare and other federal healthcare programs by billing for upcoded outpatient physical therapy services and for unallowed promotion and entertainment costs.

Billing for Tests Not Ordered or Peformed

SmithKline Beecham Clinical Laboratories

In March of 1997, SmithKline Beecham Clinical Laboratories Inc. (SBCL) was ordered to pay $325 million for filing false claims related to laboratory tests paid for in whole or in part by the federal government. SmithKline Beecham Clinical Laboratories also agreed to adopt a corporate compliance agreement. The multiple schemes involved adding on laboratory tests not requested by doctors and which were not medically necessary, billing for lab tests that were not actually performed, giving kickbacks to doctors in order to get their business, and billing Medicare for dialysis testing already paid for by kidney dialysis centers.