Minnesota-Based ev3 to Pay United States $1.25 Million to Settle False Claims Act Allegations

Medical device manufacturer ev3 Inc., formerly known as Fox Hollow Technologies Inc., has agreed to pay the United States $1.25 million to resolve allegations under the False Claims Act that Fox Hollow caused certain hospitals to submit false claims to Medicare for unnecessary inpatient admissions related to minimally-invasive atherectomy procedures, the Justice Department announced today.

“Today’s settlement demonstrates our commitment to ensure that the Medicare Trust Fund is used to pay for only necessary medical care,” said Acting Assistant Attorney General Joyce R. Branda of the Justice Department’s Civil Division.  “Charging the government for higher-cost inpatient services that patients do not need wastes the country’s precious health care resources.”

“It should come as no surprise to anyone that proper health care of a patient includes more than just competence of a provider, it requires accuracy and honesty in billing Medicare for the patient’s treatment,” said U.S. Attorney William J. Hochul Jr. of the Western District of New York.  “In this case, a medical device manufacturer allegedly induced hospitals to admit patients as inpatients for minimally-invasive procedures involving its device, even though many of those patients should have been treated as outpatients at significantly less cost.  This was done in order to collect higher Medicare reimbursements which ultimately drive up costs for all taxpayers and beneficiaries of government health programs.”

The United States alleged that Fox Hollow, which was acquired by ev3 Inc. in late 2007, knowingly caused 12 hospitals located throughout nine states to submit claims to Medicare for medically unnecessary inpatient stays for certain Medicare beneficiaries undergoing elective atherectomy procedures.  Atherectomy is a minimally-invasive surgical procedure that uses a small cutting device to remove atherosclerosis, or hardening of the arteries, from large blood vessels within the body, and it is intended to open up narrowed coronary arteries to increase blood flow and circulation.  One such device used in atherectomy procedures is the Silver Hawk Plaque Excision System sold by Fox Hollow.  The United States alleged that throughout 2006 and 2007, to increase hospital purchases of the Silver Hawk device, Fox Hollow advised hospitals that they should bill Silver Hawk atherectomy procedures as more expensive inpatient claims, as opposed to less costly outpatient claims.  As a result, certain hospitals allegedly claimed greater reimbursement than they were entitled to for treating Medicare beneficiaries who underwent Silver Hawk atherectomy procedures.

“Medical device makers that try to boost their profits by causing patients to be admitted for unnecessary and expensive inpatient hospital stays will be held accountable,” said Special Agent in Charge Thomas O’Donnell of the U.S. Department of Health and Human Services, Office of Inspector General (HHS-OIG).  “Both patients and taxpayers deserve to have medical decisions made based on what is medically appropriate.”

The civil settlement resolves a lawsuit filed under the whistleblower provision of the False Claims Act, which permits private parties to file suit on behalf of the United States for false claims and obtain a portion of the government’s recovery.  The lawsuit was filed by Amanda Cashi, who formerly worked as a Fox Hollow sales representative.  Cashi will receive $250,000.

This settlement illustrates the government’s emphasis on combating health care fraud and marks another achievement for the Health Care Fraud Prevention and Enforcement Action Team (HEAT) initiative, which was announced in May 2009 by the Attorney General and the Secretary of Health and Human Services.  The partnership between the two departments has focused efforts to reduce and prevent Medicare and Medicaid financial fraud through enhanced cooperation.  One of the most powerful tools in this effort is the False Claims Act.  Since January 2009, the Justice Department has recovered a total of more than $23.5 billion through False Claims Act cases, with more than $15 billion of that amount recovered in cases involving fraud against federal health care programs.

The settlement with ev3 was the result of a coordinated effort among the U.S. Attorney’s Office for the Western District of New York, the Civil Division’s Commercial Litigation Branch, and HHS-OIG.

The claims resolved by this settlement are allegations only and there has been no determination of liability.

The civil lawsuit is captioned United States ex rel. Cashi v. Fox Hollow Technologies, Inc., et al. Civ. No. 09-CV-01066-S (W.D.N.Y.).

United States Settles False Claims Act Suit Against Good Shepherd Hospice Inc. and Related Entities

Midwest Hospice Chain Allegedly Billed Medicare for Ineligible Patients

Today, Good Shepherd Hospice Inc., Good Shepherd Hospice of Mid America Inc., Good Shepherd Hospice, Wichita, L.L.C., Good Shepherd Hospice, Springfield, L.L.C., and Good Shepherd Hospice – Dallas L.L.C. (collectively Good Shepherd) agreed to pay $4 million to resolve allegations that Good Shepherd submitted false claims for hospice patients who were not terminally ill.  Good Shepherd is a for-profit hospice headquartered in Oklahoma City which provides hospice services in Oklahoma, Missouri, Kansas and Texas.

“The Medicare hospice benefit is intended to provide comfort and care to patients nearing the end of life,” said Acting Assistant Attorney General Joyce R. Branda of the Justice Department’s Civil Division.  “We will continue to aggressively pursue companies that abuse the hospice benefit to improperly inflate their profits.”

The Medicare hospice benefit is available for patients who elect palliative treatment (medical care focused on providing patients with relief from pain, symptoms or stress) for a terminal illness and have a life expectancy of six months or less if their illness runs its normal course.  When a Medicare patient receives hospice services, that individual is no longer entitled to Medicare coverage for care designed to cure his or her illness.

The government alleged that Good Shepherd knowingly submitted or caused the submission of false claims for hospice care for patients who were not terminally ill.  Specifically, the United States contended that Good Shepherd engaged in certain business practices that contributed to claims being submitted for patients who did not have a terminal prognosis of six months or less, by pressuring staff to meet admissions and census targets and paying bonuses to staff, including hospice marketers, admissions nurses and executive directors, based on the number of patients enrolled.  The United States further alleged that Good Shepherd hired medical directors based on their ability to refer patients, focusing particularly on medical directors with ties to nursing homes, which were seen as an easy source of patient referrals.  The United States also alleged that Good Shepherd failed to properly train staff on the hospice eligibility criteria.

“Health care fraud puts profits above patients, and steals from taxpayers,” said U.S. Attorney Tammy Dickinson of the Western District of Missouri.  “In this case, company whistleblowers alleged that patients received unnecessary hospice care while Good Shepherd engaged in illicit business practices to enrich itself at the public’s expense.  Today’s settlement fairly resolves those issues and puts measures in place to prevent similar conduct in the future.”

In addition, as part of the settlement, each Good Shepherd entity agreed to enter into a corporate integrity agreement with the U.S. Department of Health and Human Services-Office of the Inspector General (HHS-OIG), which will provide for procedures and reviews to be put into place to avoid and promptly detect conduct similar to that which gave rise to the settlement.

“Being a hospice provider in the Medicare program is a privilege, not a right,” said Special Agent in Charge Mike Fields of the HHS-OIG Dallas Region.  “Hospice providers that seek to boost profits by providing hospice services to Medicare beneficiaries who are not terminally ill compromise both the health of its patients as well as the integrity of Medicare.  Our agency will continue to hold such hospice providers accountable for their actions.”

The settlement resolves allegations filed by relators Kathi Cordingley and Tracy Jones, former employees of Good Shepherd, under the qui tam or whistleblower provisions of the False Claims Act, which authorize private parties to sue for fraud on behalf of the United States and share in the recovery.  The relators will receive approximately $680,000.

This suit is part of the government’s emphasis on combating health care fraud and marks another achievement for the Health Care Fraud Prevention and Enforcement Action Team (HEAT) initiative, which was announced in May 2009 by the Attorney General and the Secretary of Health and Human Services.  The partnership between the two departments has focused efforts to reduce and prevent Medicare and Medicaid financial fraud through enhanced cooperation.  One of the most powerful tools in this effort is the False Claims Act.  Since January 2009, the Justice Department has recovered a total of more than $23.5 billion through False Claims Act cases, with more than $15 billion of that amount recovered in cases involving fraud against federal health care programs.

This matter was investigated by the Civil Division’s Commercial Litigation Branch, the U.S. Attorney’s Office for the Western District of Missouri and HHS-OIG.  The claims asserted against defendants are allegations only and there has been no determination of liability.

The lawsuit is captioned United States ex rel. Cordingley and Jones v. Good Shepherd Hospice, Mid America, Inc., No. 4:11-cv-1087 (W.D. Mo.).

Daiichi Sankyo Inc. Agrees to Pay $39 Million to Settle Kickback Allegations Under the False Claims Act

Daiichi Sankyo Inc., a global pharmaceutical company with its U.S. headquarters in New Jersey, has agreed to pay the United States and state Medicaid programs $39 million to resolve allegations that it violated the False Claims Act by paying kickbacks to induce physicians to prescribe Daiichi drugs, including Azor, Benicar, Tribenzor and Welchol, the Justice Department announced today.

“The Anti-Kickback Statute prohibits payments intended to influence a physician’s ordering or prescribing decisions,” said Acting Assistant Attorney General Joyce R. Branda for the Civil Division.  “The Department of Justice is committed to preserving the independence and objectivity of those decisions, which are cornerstones of our public health programs.”

The Anti-Kickback Statute was enacted to ensure that physicians’ medical judgment is not compromised by improper payments and gifts by other health care providers.  The statute generally prohibits anyone from offering, paying, soliciting or receiving remuneration to induce referrals of items or services covered by federal health care programs, including Medicare and Medicaid.

In this case, the government alleged that Daiichi paid physicians improper kickbacks in the form of speaker fees as part of Daiichi’s Physician Organization and Discussion programs, known as “PODs,” which were run from Jan. 1, 2005, through March 31, 2011, as well as other speaker programs that were run from Jan. 1, 2004, through Feb. 4, 2011.  Allegedly, payments were made to physicians even when physician participants in PODs took turns “speaking” on duplicative topics over Daiichi-paid dinners, the recipient spoke only to members of his or her own staff in his or her own office, or the associated dinner was so lavish that its cost exceeded Daiichi’s own internal cost limitation of $140 per person.

“Drug companies are prohibited from using lavish entertainment and padded speaker program payments to induce physicians to prescribe their drugs for beneficiaries of federal health care programs,” said U.S. Attorney Carmen Ortiz for the District of Massachusetts.  “Settlements like this one show that the government will continue to pursue health care companies that use kickbacks to promote their products.”

As part of the settlement, Daiichi has agreed to enter into a corporate integrity agreement with the Department of Health and Human Services-Office of Inspector General (HHS-OIG), which obligates the defendants to undertake substantial internal compliance reforms for the next five years.

“Schemes such as this are particularly abhorrent,” said Inspector General Daniel R. Levinson for the U.S. Department of Health and Human Services.  “Manufacturers and physicians who engage in them are cheating Medicare and Medicaid out of millions of dollars and threatening programs upon which many elderly and disabled Americans rely.  My office will take whatever steps necessary to guard against improper alliances between manufacturers of drugs and those who prescribe them.  Through our corporate integrity agreement we will be closely monitoring Daiichi.”

The settlement announced today stems from a complaint filed by Kathy Fragoules, a former Daiichi sales representative, under the whistleblower provisions of the False Claims Act, which authorize private parties to sue on behalf of the United States, and to receive a portion of any recovery.  Fragoules will receive $6.1 million of the federal recovery.

This settlement illustrates the government’s emphasis on combating health care fraud and marks another achievement for the Health Care Fraud Prevention and Enforcement Action Team (HEAT) initiative, which was announced in May 2009 by the Attorney General and the Secretary of Health and Human Services.  The partnership between the two departments has focused efforts to reduce and prevent Medicare and Medicaid financial fraud through enhanced cooperation.  One of the most powerful tools in this effort is the False Claims Act.  Since January 2009, the Justice Department has recovered a total of more than $23.3 billion through False Claims Act cases, with more than $14.9 billion of that amount recovered in cases involving fraud against federal health care programs.

The investigation and litigation was conducted by the Civil Division, the U.S. Attorney’s Office for the District of Massachusetts, the U.S. Department of Veterans Affairs, the Department of Defense Criminal Investigative Service, HHS-OIG and the FBI.  The claims settled by this agreement are allegations only and there has been no determination of liability.

The case is captioned U.S. ex rel. Fragoules v. Daiichi Sankyo, Inc., Civil Action No. 10-10420 (D. Mass.).

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United States Files Suit Against Omnicare Inc. for Accepting Kickbacks from Drug Manufacturer to Promote an Anti-Epileptic Drug in Nursing Homes

The United States has filed a civil False Claims Act complaint against Omnicare Inc. alleging that it solicited and received millions of dollars in kickbacks from pharmaceutical manufacturer Abbott Laboratories, the Justice Department announced today.  Omnicare is the nation’s largest provider of pharmaceuticals and pharmacy consulting services to nursing homes.  Federal regulations designed to protect nursing home residents from unnecessary drugs require nursing homes to retain consulting pharmacists such as those provided by Omnicare to ensure that residents’ drug prescriptions are appropriate.

In its complaint, the United States alleges that Omnicare solicited and received kickbacks from Abbott in exchange for purchasing and recommending the prescription drug Depakote for controlling behavioral disturbances exhibited by dementia patients residing in nursing homes serviced by Omnicare.  According to the complaint, Omnicare’s pharmacists reviewed nursing home patients’ charts at least monthly and made recommendations to physicians on what drugs should be prescribed for those patients.  The government alleges that Omnicare touted its influence over physicians in nursing homes in order to secure kickbacks from pharmaceutical companies such as Abbott.

“Elderly nursing home residents suffering from dementia are among our nation’s most vulnerable patient populations, and they depend on the independent judgment of healthcare professionals for their daily care,” said Acting Assistant Attorney General Joyce R. Branda for the Justice Department’s Civil Division.  “Kickbacks to consulting pharmacists compromise their independence and undermine their role in protecting nursing home residents from the use of unnecessary drugs.”

The United States alleges that Omnicare disguised the kickbacks it received from Abbott in a variety of ways.  Abbott allegedly made payments to Omnicare described as “grants” and “educational funding,” even though their true purpose was to induce Omnicare to recommend Depakote.  For example, according to the complaint, Omnicare solicited substantial contributions from Abbott and other pharmaceutical manufacturers to its “Re*View” program.  Although Omnicare claimed that Re*View was a “health management” and “educational” program, the complaint alleges that it was simply a means by which Omnicare solicited kickbacks from pharmaceutical manufacturers in exchange for increasing the utilization of their drugs on elderly nursing home residents.  In internal documents, Omnicare allegedly referred to Re*View as its “one extra script per patient” program.  The complaint also alleges that Omnicare entered into agreements with Abbott by which Omnicare was entitled to increasing levels of rebates from Abbott based on the number of nursing home residents serviced and the amount of Depakote prescribed per resident.  Finally, the complaint alleges that Abbott funded Omnicare management meetings on Amelia Island, Florida, offered tickets to sporting events to Omnicare management, and made other payments to local Omnicare pharmacies.

“Although the United States Attorney’s Office for the Western District of Virginia is small, we will not waver in our pursuit of the largest corporations, like Omnicare and Abbott, who illegally raid the coffers of Medicaid, Medicare, and other healthcare benefit programs,” said Acting U.S. Attorney Anthony P. Giorno for the Western District of Virginia.

“Kickback allegations place elderly nursing home residents at risk that treatment decisions are influenced by improper financial incentives,” said Special Agent in Charge Nicholas DiGiulio for the Department of Health and Human Services’ Office of Inspector General (HHS-OIG) region including Virginia. “We will continually guard government health programs and taxpayers from companies more intent on their bottom lines than on patient care.”

In May 2012, the United States, numerous individual states, and Abbott entered into a $1.5 billion global civil and criminal resolution that, among other things, resolved Abbott’s civil liability under the False Claims Act for paying kickbacks to nursing home pharmacies.

The United States filed its complaint against Omnicare in two consolidated whistleblower lawsuits filed under the False Claims Act in the Western District of Virginia.  The whistleblower provisions of the False Claims Act authorize private parties to sue for fraud on behalf of the United States and share in any recovery.  The United States is entitled to intervene and take over such lawsuits, as it has done here.

This case illustrates the government’s emphasis on combating health care fraud and marks another achievement for the Health Care Fraud Prevention and Enforcement Action Team (HEAT) initiative, which was announced in May 2009 by the Attorney General and the Secretary of Health and Human Services.  The partnership between the two departments has focused efforts to reduce and prevent Medicare and Medicaid financial fraud through enhanced cooperation.  One of the most powerful tools in this effort is the False Claims Act.  Since January 2009, the Justice Department has recovered a total of more than $23.2 billion through False Claims Act cases, with more than $14.9 billion of that amount recovered in cases involving fraud against federal health care programs.

This investigation was jointly handled by the Civil Division’s Commercial Litigation Branch, the U.S. Attorney’s Office for the Western District of Virginia, HHS-OIG, the Office of the Attorney General for the Commonwealth of Virginia and the National Association of Medicaid Fraud Control Units.

The cases are captioned United States ex rel. Spetter v. Abbott Labs., et al., Case No. 10-cv-00006 (W.D. Va.) and United States ex rel. McCoyd v. Abbott Labs., et al., Case No. 07-cv-00081 (W.D. Va.).  The claims asserted in the government’s complaint are allegations only and there has been no determination of liability.

Iron Mountain Companies Pay $44.5 Million to Settle Alleged False Billings for Storing Government Documents and Data

Iron Mountain Incorporated and Iron Mountain Information Management LLC (collectively Iron Mountain) has paid $44.5 million to resolve allegations under the False Claims Act that Iron Mountain overcharged federal agencies for record storage services under General Services Administration (GSA) contracts, the Department of Justice announced today.  Iron Mountain is a records storage company headquartered in Boston.

“Protecting the federal procurement process from false claims is central to the mission of the Department of Justice,” said Acting Assistant Attorney General Joyce R. Branda for the Justice Department’s Civil Division.  “We will continue to ensure that when federal monies are used to purchase commercial services the government receives the prices and services to which it is entitled.”

“This settlement illustrates our commitment to protecting the integrity of federal contracting programs,” said U.S. Attorney Benjamin B. Wagner for the Eastern District of California.  “Federal agencies rely on pricing information under the Multiple Award Schedule program in particular, and deserve the full benefit of applicable contract terms.”

This settlement relates to contracts under which Iron Mountain provided record storage services to government entities from 2001 to 2014 through GSA’s Multiple Award Schedule (MAS) program.  The MAS program provides the government with a streamlined process for procurement of commonly used commercial goods and services.  The settlement resolves allegations that Iron Mountain failed to meet its contractual obligations to provide GSA with accurate information about its commercial sales practices during contract negotiations, and failed to comply with the price reduction clause of the GSA contracts by not extending lower prices to government customers during its performance of the contracts.  It also resolves an allegation that Iron Mountain charged the United States for storage meeting National Archives and Records Administration requirements when the storage provided did not meet such requirements.

“My office will continue working diligently to make sure American taxpayers are getting the best value for every dollar spent,” said Acting Inspector General Robert C. Erickson for GSA.

The civil settlement resolves a lawsuit filed under the whistleblower provision of the False Claims Act, which permits private parties to file suit on behalf of the United States for false claims and obtain a portion of the government’s recovery.  The civil lawsuit was filed in the Eastern District of California by Brent Stanley, a former Iron Mountain employee, and Patrick McKillop, who worked in the records management industry.  Collectively, they will receive $8,010,000.

The settlement with Iron Mountain was the result of a coordinated effort among the U.S. Attorney’s Office for the Eastern District of California, the Civil Division’s Commercial Litigation Branch, the GSA’s Office of the Inspector General, the Defense Criminal Investigative Service, the Defense Contract Audit Agency, the NASA Office of Inspector General, the U.S. Department of Veterans Affairs’ Office of Inspector General, the U.S. Department of Agriculture’s Office of Inspector General, U.S. Army Criminal Investigation Command, and the U.S. Department of Housing and Urban Development’s Office of Inspector General.

The lawsuit is captioned United States ex rel. Brent Stanley and Patrick McKillop v. Iron Mountain Incorporated, Civil Action No. 11-3260 (E.D. Cal.).  The claims resolved by this settlement are allegations only, and there has been no determination of liability.

Defense Contractor Agrees to Pay $27.5 Million to Settle Overbilling Allegations

Lockheed Martin Integrated Systems (LMIS) has agreed to pay $27.5 million to resolve allegations that it violated the False Claims Act by knowingly overbilling the government for work performed by LMIS employees who lacked required job qualifications.

The settlement was announced today by Acting Assistant Attorney General Joyce R. Branda for the Justice Department’s Civil Division and U.S. Attorney Paul J. Fishman for the District of New Jersey.

“Contractors that knowingly bill the government in violation of contract terms will face serious consequences,” said Acting Assistant Attorney General Branda.  “The department will ensure that those who do business with the government, and seek taxpayer funds, do so fairly and in accordance with the applicable rules.”

“U.S. forces rely on the goods and services provided by defense contractors, so it is imperative the government be able to rely on those contractors to adhere to the rules,” said U.S. Attorney Fishman.  “This settlement should remind all who do business with the government that there is a price to pay for fudging the math.”

LMIS is a subsidiary of Lockheed Martin Inc., which is headquartered in Bethesda, Maryland.  The alleged labor mischarging occurred on the Rapid Response (CR2) contract and the Strategic Services Sourcing (S3) contract, both issued by the U.S. Army Communication and Electronics Command (CECOM).  CECOM is located at Fort Monmouth, New Jersey, and at the Aberdeen Proving Group in Maryland.  The purpose of the CR2 and S3 contracts is to provide rapid access to products and services to be provided to the Army in Iraq and Afghanistan. Individual task orders then are separately negotiated, based on these contracts, to quickly meet the needs of CECOM.  LMIS allegedly violated the terms of the contracts by using under-qualified employees who were billed to the United States at the rates of more qualified employees.  The overbilling allegedly resulted in greater profit for LMIS.

“This settlement demonstrates the commitment of the Defense Criminal Investigative Service (DCIS) and our partners to vigorously pursue alleged violations of the False Claims Act,” said Special Agent in Charge Craig W. Rupert of the DCIS Northeast Field Office.  “All contractors doing business with the federal government are expected to abide by the acquisition rules no matter who they are.  Investigations of such allegations are necessary to protect American taxpayers and our warfighters.”

This settlement was the result of a coordinated effort by the Civil Division, the U.S. Attorney’s Office for the District of New Jersey, the Southern New Jersey Branch of the Defense Contract Audit Agency (DCAA) and the DCAA’s Mid-Atlantic Region’s Comprehensive Labor Team and Investigative Support Team, the U.S. Army’s Criminal Investigative Command’s Major Procurement Fraud Unit and the DCIS.

The claims resolved by the settlement are allegations only and there has been no determination of liability

Federal Contractors Eyak Technology LLC and Eyak Services LLC Resolve False Claims Act and Anti-Kickback Act Allegations

Alaska and Virginia-based technology contractors Eyak Technology LLC (EyakTek) and Eyak Services LLC (ESL) have agreed to pay $2.5 million and relinquish any rights to additional payments from the United States to resolve allegations that they submitted false claims to the U.S. Army Corps of Engineers, the Justice Department announced today.  EyakTek and its sister company, ESL, provide healthcare, information technology, communications and infrastructure services to the U.S. government.  Both are subsidiaries of The Eyak Corporation, headquartered in Anchorage, Alaska.

“Federal government contractors and their employees must adhere to high standards in their dealings with the government,” said Acting Assistant Attorney General Joyce R. Branda for the Justice Department’s Civil Division.  “We will vigorously pursue those who pay kickbacks or otherwise engage in conduct that undermines the integrity of the contracting process.”

From 2005 to 2011, EyakTek held a $1 billion prime contract with the U.S. Army Corps of Engineers known as the Technology for Infrastructure, Geospatial, and Environmental Requirements contract.

The government alleged that, between Sept. 12, 2007, and Oct. 4, 2011, EyakTek’s then-director of contracts, Harold Babb, accepted kickbacks from several subcontractors of EyakTek and ESL in return for using his position to direct subcontracts to them.  EyakTek and ESL allegedly submitted invoices to the Army Corps that included charges for work that was never performed by the subcontractors and lacked internal controls to detect the improper charges.

In March 2012, Babb pleaded guilty to bribery and kickback charges.  The U.S. District Court for the District of Columbia sentenced him to serve 87 months in prison, to be followed by 36 months of supervised release and more than $9 million in restitution for his role in the kickback scheme.

The Army Corps stopped payments to EyakTek and ESL when the alleged scheme came to light.  As part of the settlement, EyakTek and ESL will withdraw any appeals seeking the return of those funds, and relinquish all rights to any payments that have been withheld.

“This settlement demonstrates our willingness to use every tool of civil and criminal law in our arsenal to defend the American taxpayer from corruption in contracting,” said U.S. Attorney Ronald C. Machen Jr. for the District of Columbia.  “The criminal investigation into this wide-ranging bribery and kickback scheme has now resulted in the convictions of 20 individuals, including EyakTek’s former contracts director.  We have aggressively pursued asset forfeitures in the criminal proceedings to make the taxpayer whole and to deprive wrongdoers of their ill-gotten gains.  This civil settlement sends a message to contractors who try to cheat in the competition for government funds.”

“This is yet another prime example of our commitment, along with other fellow law enforcement agencies to hold people and companies accountable for each and every detail of their contracts with the U.S. government and the U.S. Army,” said Director Frank Robey of the U.S. Army Criminal Investigation Command’s Major Procurement Fraud Unit.  “Our agents will continue to aggressively investigate and identify any potential abuses that arise in regard to the contracting process.”

“Manipulations of the Department of Defense procurement process will not be tolerated,” said Special Agent in Charge Robert Craig for the Defense Criminal Investigative Service (DCIS) Mid-Atlantic Field Office.  “Today’s settlement demonstrates the commitment by DCIS and its partner agencies to hold accountable companies who attempt to bypass federal contracting laws.”

Today’s settlement is the result of a coordinated effort among the department’s Civil Division, the U.S. Attorney’s Office for the District of Columbia, the U.S. Army Corps of Engineers, DCIS, the Defense Contract Audit Agency, the Army’s Major Procurement Fraud Unit and the Small Business Administration.

The claims settled by this agreement are allegations only, and there has been no determination of liability.

Defense Contractor Pleads Guilty to Major Fraud in Provision of Supplies to U.S. Troops in Afghanistan

Supreme Foodservice GmbH, a privately held Swiss company, and Supreme Foodservice FZE, a privately-held United Arab Emirates (UAE) company, pleaded guilty today to major fraud against the United States and agreed to resolve civil violations of the False Claims Act, in connection with a contract to provide food and water to the U.S. troops serving in Afghanistan, the Justice Department announced today.  The companies pleaded guilty in the Eastern District of Pennsylvania (EDPA) and paid $288.36 million in the criminal case, a sum that includes the maximum criminal fine allowed.

In addition, Supreme Group B.V. and several of its subsidiaries have agreed to pay an additional $146 million to resolve a related civil lawsuit, as well as two separate civil matters, alleging false billings to the Department of Defense (DoD) for fuel and transporting cargo to American soldiers in Afghanistan.  The lawsuit was filed in the EDPA, and the fuel and transportation allegations were investigated by the Southern District of Illinois and the Eastern District of Virginia, respectively, along with the Department’s Civil Division.

“The civil resolutions and agreements reflect the Justice Department’s continuing efforts to hold accountable contractors that have engaged in war profiteering,” said Acting Assistant Attorney General Joyce R. Branda for the Justice Department’s Civil Division.  “The department will pursue contractors that knowingly seek taxpayer funds to which they are not entitled.”

“These companies chose to commit their fraud in connection with a contract to supply food and water to our nation’s fighting men and women serving in Afghanistan,” said U.S. Attorney Zane David Memeger for the Eastern District of Pennsylvania.  “That kind of conduct is repugnant, and we will use every available resource to punish such illegal war profiteering.”

The Criminal Fraud

In 2005, Supreme Foodservice AG, now called Supreme Foodservice GmbH, entered into a contract with the Defense Supply Center of Philadelphia (DSCP, now called Defense Logistics Agency – Troop Support) to provide food and water for the U.S. forces serving in Afghanistan.  According to court documents, between July 2005 and April 2009, Supreme Foodservice AG, together with Supreme Foodservice KG, now called Supreme Foodservice FZE, devised and implemented a scheme to overcharge the United States in order to make profits over and above those provided in the $8.8 billion subsistence prime vendor (SPV) contract.  The companies fraudulently inflated the price charged for local market ready goods (LMR) and bottled water sold to the United States under the SPV contract.  The Supreme companies did this by using a UAE company it controlled, Jamal Ahli Foods Co. LLC (JAFCO), as a middleman to mark up prices for fresh fruits and vegetables and other locally-produced products sold to the U.S. government, and to obscure the inflated price the Supreme companies were charging for bottled water.  The fraud resulted in a loss to the government of $48 million.

Supreme AG, Supreme FZE and Supreme’s owners (referred to in court documents as Supreme Owners #1 and #2) made concentrated efforts to conceal Supreme’s true relationship with JAFCO, and to make JAFCO appear to be an independent company.  They also took steps to make JAFCO’s mark-up on LMR look legitimate, and persisted in the fraudulent mark-ups even in the face of questions from DSCP about the pricing of LMR.

Even though the SPV contract stated that the Supreme food companies should charge the government the supplier’s price for the goods, emails between executives at the companies (referred to as Supreme Executive #1, #2, etc) reveal the companies’ deliberate decision to inflate the prices. Among other things, Supreme Owner #1 increased the mark-up that JAFCO would impose on non-alcoholic beer from 25 percent to 125 percent.  On or about Feb. 16, 2006, during a discussion about supplying a new product to the U.S. government, one Supreme executive wrote to another, “I am very sure the best option is to buy it from Germany and mark up via [JAFCO], like [non-alcoholic] beer.”

In early March 2006, after a DSCP contracting officer told the Supreme food companies that she wanted to see a manufacturer’s invoice for specific frozen products, Supreme Foodservice GmbH lowered its prices for those products to prices that did not include a JAFCO mark-up.  On March 14, 2006, instead of disclosing that the initial pricing had included a mark-up, a Supreme executive misled the DSCP representative by saying, “Based on more realistic quantities, we have been able to negotiate a better price,” to explain the change in pricing.

In June 2006, when a DSCP contracting officer raised questions about pricing focusing on four specific items, Supreme executives again misled the DSCP, claiming that the high prices were for a high quality of product, and offering to sell lower quality products for lower prices.  Supreme Foodservice GmbH did this even after analyzing its JAFCO margin on the four items in question and finding its profit margins were between 41 and 56 percent.

In September 2007, after a fired Supreme executive threatened to tell the DSCP about the fraud, his former employer entered into negotiation of a “separation agreement” with that executive to induce that executive not to disclose the ways in which the Supreme food companies were overcharging the DSCP.  The agreement stated that the executive would receive, among other things, a payment of 400,000 euros in September 2010, provided that the executive did not cause: a deterioration in the economic situation linked to the SPV contract; the termination of the SPV contract; or a decrease in the price levels for products, specifically including LMR and bottled water provided to the U.S. government.

Defendant Supreme GmbH pleaded guilty to major fraud against the United States, conspiracy to commit major fraud and wire fraud.  Supreme FZE, which owns JAFCO, pleaded guilty to major fraud against the United States.  The Supreme companies agreed to jointly pay $48 million in restitution and $10 million in criminal forfeiture.  Each company also agreed to pay $96 million in criminal fines.  In addition, as a result of the criminal investigation, the Supreme companies paid $38.3 million directly to the DSCP as a refund for separate overpayments on bottled water.

The Civil Settlements

In a related civil settlement, Supreme Group agreed to pay another $101 million to settle a whistleblower lawsuit, filed in the U.S. District Court for the EDPA by a former executive, which alleged that Supreme Group, and its food subsidiaries, violated the False Claims Act by knowingly overcharging for supplying food and water under the SPV contract.  The payment also resolves claims that, from June 2005 to December 2010, the Supreme food companies failed to disclose and pass through to the government rebates and discounts it obtained from its suppliers, as required by its SPV contract with the United States.

“Today’s results are part of an ongoing effort by the Defense Criminal Investigative Service (DCIS) and its law enforcement partners to protect the integrity of the Department of Defense’s acquisition process from personal and corporate greed,” said Deputy Inspector General for Investigations James B. Burch for the U.S. Department of Defense’s Office of the Inspector General.  “The Defense Criminal Investigative Service will continue to pursue allegations of fraud and corruption that puts the Warfighter at risk.”

“We are very pleased with this resolution, and are gratified that the public can now see what we’ve been aggressively investigating,” said Director Frank Robey of the U.S. Army Criminal Investigation Command’s Major Procurement Fraud Unit (MPFU).  “Companies that do business with the government must comply with all of their obligations, and if they overcharge for supplying our men and women in uniform who are bravely serving this nation, they must be held accountable for their actions.”

Separately, Supreme Site Services GmbH, a Supreme Group subsidiary, agreed to pay $20 million to settle allegations that they overbilled for fuel purchased by the Defense Logistics Agency (DLA) for Kandahar Air Field (KAF) in Afghanistan under a NATO Basic Ordering Agreement.  The government alleged that Supreme Site Services’ drivers were stealing fuel destined for KAF generators while en route for which the company falsely billed DLA.

“It is important that government contractors supporting conflicts abroad be held accountable for their billings to the government,” said U.S. Attorney Dana J. Boente for the Eastern District of Virginia.  “The DoD investigating components are instrumental in protecting the interests of the government, and their efforts in this investigation are to be commended.”

Supreme Group’s subsidiary Supreme Logistics FZE also has agreed to pay $25 million to resolve alleged false billings by Supreme Logistics in connection with shipping contracts between the U.S. Transportation Command (USTRANSCOM), located at Scott Air Force Base in Illinois, and various shipping carriers to transport food to U.S. troops in Afghanistan during Operation Enduring Freedom.  The shipping carriers transported cargo destined for U.S. troops from the United States to Latvia or other intermediate ports, and then arranged with logistics vendors, including Supreme Logistics, to carry the cargo the rest of the way to Afghanistan.  The United States alleged that Supreme Logistics falsely billed USTRANSCOM for higher-priced refrigerated trucks when it actually used lower-priced non-refrigerated trucks to transport the cargo.

“The U.S. Attorney’s Office for the Southern District of Illinois is committed to protecting the integrity of all of the vital missions carried out at Scott Air Force Base, including the mission of the U.S. Transportation Command,” said U.S. Attorney Stephen R. Wigginton for the Southern District of Illinois.  “These vital services carried out by the brave men and women of the armed forces of the United States deserve, and will receive, our full support, and this office will do everything possible to protect their missions.”

“These settlements are victories for American taxpayers,” said Special Inspector General John F. Sopko for Afghanistan Reconstruction.  “It sends a clear signal that whether a case involves a mom and pop outfit or a major multinational corporation, we will work tirelessly with our investigative partners to pursue justice any time U.S. dollars supporting the mission in Afghanistan are misused.”

The EDPA lawsuit was initially filed under the qui tam or whistleblower provisions of the False Claims Act, by Michael Epp, Supreme GmbH’s former Director, Commercial Division and Supply Chain.  The False Claims Act prohibits the submission of false claims for government money or property and allows the United States to recover treble damages and penalties for a violation.  Under the Act’s whistleblower provisions, a private party may file suit on behalf of the United States and share in any recovery.  The case remained under seal to permit the United States to investigate the allegations and decide whether to intervene and take over the case.  Epp will receive $16.16 million as his share of the government’s settlement of the lawsuit.

The criminal and civil matters in the EDPA were the result of a coordinated effort by the Department of Justice’s Civil Division, the U.S. Attorney’s Office for the Eastern District of Pennsylvania, DCIS, U.S. Army’s Criminal Investigative Command’s MPFU and the FBI.

The investigation of Supreme Site Services ’ alleged false billings for fuel was conducted by the Civil Division and the U.S. Attorney’s Office for the Eastern District of Virginia, and the investigation of Supreme Logistics’ alleged false invoices for transportation was handled by the Civil Division and the U.S. Attorney’s Office for the Southern District of Illinois.  Both matters were investigated by the Defense Contract Audit Agency Office of Investigative Support, the Army Audit Agency, the International Contract Corruption Task Force, the U.S. Army’s Criminal Investigative Command’s Major Procurement Fraud Unit, the DoD Office of Inspector General’s DCIS, the Special Inspector General for Afghan Reconstruction, the U.S. Air Force Office of Special Investigations and the Naval Criminal Investigative Service.

The claims resolved by the civil settlements are allegations only, except for the conduct for which the Supreme food companies have pleaded guilty.

Rite Aid Corporation Pays $2.99 Million for Alleged Use of Gift Cards to Induce Medicare and Medicaid Business

Rite Aid Corporation, a Delaware corporation and national retail drugstore chain with its principal place of business in Camp Hill, Pennsylvania, has paid the United States $2.99 million to resolve allegations that it violated the False Claims Act by inappropriately using gift cards as inducements, the Department of Justice announced today.

The settlement resolves allegations that Rite Aid offered illegal inducements to Medicare and Medicaid beneficiaries to transfer their prescriptions to Rite Aid pharmacies.  The government alleged that from 2008 to 2010, Rite Aid had knowingly and improperly influenced the decisions of Medicare and Medicaid beneficiaries to transfer their prescriptions to Rite Aid pharmacies by offering them gift cards in exchange for their business.

“This case demonstrates the government’s ongoing commitment to enforcing accountability, transparency and fairness in the retail pharmacy industry,” said Acting Assistant Attorney General Joyce R. Branda for the Civil Division.  “The government will continue to advocate for the best interests of Medicare and Medicaid patients, and prevent pharmacies from improperly manipulating their healthcare choices.”

“This settlement holds Rite Aid accountable for exerting undue influence on individuals when they make important healthcare decisions about where and when to fill prescriptions,” said Acting U.S. Attorney Stephanie Yonekura for the Central District of California.  “Corporate profit should never steer an individual away from making the right healthcare decision.”

“Pharmacies are not allowed to improperly influence the decision-making of Medicare and Medicaid patients about where to fill prescriptions,” said Special Agent in Charge Glenn R. Ferry for the U.S. Department of Health and Human Services Office of Inspector General (HHS-OIG).  “Pharmacy chains that manipulate patient choices in this way will be held accountable.”

The settlement resolves allegations filed by Jack Chin under the qui tam, or whistleblower provisions of the False Claims Act, which authorizes private parties to sue for fraud on behalf of the United States and share in the recovery.  Chin will receive approximately $508,300 of the settlement.

This settlement illustrates the government’s emphasis on combating health care fraud and marks another achievement for the Health Care Fraud Prevention and Enforcement Action Team (HEAT) initiative, which was announced in May 2009 by the Attorney General and the Secretary of Health and Human Services.  The partnership between the two departments has focused efforts to reduce and prevent Medicare and Medicaid financial fraud through enhanced cooperation.  One of the most powerful tools in this effort is the False Claims Act.  Since January 2009, the Justice Department has recovered a total of more than $23.2 billion through False Claims Act cases, with more than $14.9 billion of that amount recovered in cases involving fraud against federal health care programs.

This case was investigated jointly by the Commercial Litigation Branch of the Civil Division, the U.S. Attorney’s Office for the Central District of California, the National Association of Medicaid Fraud Control Units and HHS-OIG.

The claims settled by today’s agreement are allegations only and there has been no determination of liability.

Careall Companies Agree to Pay $25 Million to Settle False Claims Act Allegations

CareAll Management LLC and its affiliated entities (collectively “CareAll”) have agreed to pay $25 million, plus interest, to the United States and the state of Tennessee to resolve allegations that CareAll violated the False Claims Act by submitting false and upcoded home healthcare billings to the Medicare and Medicaid programs, the Department of Justice announced today.  CareAll is based in Nashville, Tennessee, and is one of Tennessee’s largest home health providers.

“Home health agencies may only bill Medicare and Medicaid for care that is necessary and covered by the programs,” said Acting Assistant Attorney General Joyce R. Branda for the Justice Department’s Civil Division.  “This settlement is another example of the department’s commitment to ensuring that home health care dollars – which are so vital to ensure the care of homebound patients – are spent for their intended purposes.”

This settlement resolves allegations that between 2006 and 2013, CareAll overstated the severity of patients’ conditions to increase billings and billed for services that were not medically necessary and rendered to patients who were not homebound.

“This case demonstrates that enforcement of the False Claims Act is a priority of the U.S. Attorney’s Office for the Middle District of Tennessee,” said U.S. Attorney David Rivera for the Middle District of Tennessee.  “The U.S. Attorney’s Office and our law enforcement partners are committed to protecting the public and vigorously pursuing all those who knowingly submit false claims affecting the Medicare and Medicaid programs.”

This is CareAll’s second settlement of alleged False Claims Act violations within the last two years.  In 2012, CareAll paid nearly $9.38 million for allegedly submitting false cost reports to Medicare.  As part of the settlement announced today, the companies agreed to be bound by the terms of an enhanced and extended corporate integrity agreement with the Department of Health and Human Services-Office of Inspector General (HHS-OIG) in an effort to avoid future fraud and compliance failures.

“Fraudulent home-based services are surging across the country,” said Special Agent in Charge Derrick L. Jackson of HHS-OIG in Atlanta.  “We will continue to protect both Medicare and taxpayers, and ensure that funds are not siphoned off by companies more concerned with the bottom line than patient care.”

Under the False Claims Act, private citizens, known as relators, can bring suit on behalf of the United States and share in any recovery.  The relator in this case, Toney Gonzales, will receive more than $3.9 million as his share of the recovery.

This settlement illustrates the government’s emphasis on combating health care fraud and marks another achievement for the Health Care Fraud Prevention and Enforcement Action Team (HEAT) initiative, which was announced in May 2009 by the Attorney General and the Secretary of HHS.  The partnership between the two departments has focused efforts to reduce and prevent Medicare and Medicaid financial fraud through enhanced cooperation.  One of the most powerful tools in this effort is the False Claims Act.  Since January 2009, the Justice Department has recovered a total of more than $23.1 billion through False Claims Act cases, with more than $14.8 billion of that amount recovered in cases involving fraud against federal health care programs.

The settlement was the result of a coordinated effort by the Civil Division, the U.S. Attorney’s Office for the Middle District of Tennessee, HHS-OIG and the Tennessee Bureau of Investigation.

The case is docketed as United States ex rel. Gonzales v. J.W. Carell Enterprises, Inc., et al., No. 12-0389 (M.D. Tenn.).  The claims resolved by the settlement are allegations only; there has been no determination of liability.