The DOJ announced it reached a settlement with Arriva Medical, LLC (“Arriva”) and its parent company Alere Inc. (“Alere”) to resolve allegations that the companies violated the Anti-Kickback Statute and the False Claims Act (“FCA”).

Arriva, formed in 2009, was at one point the nation’s largest Medicare mail-order diabetic testing supplier. The DOJ alleged that, from 2010 through 2016, Arriva violated the Anti-Kickback Statute by offering kickbacks to Medicare beneficiaries by providing free blood glucose monitors or waiving beneficiary co-payment obligations.

Specifically, Arriva allegedly advertised that the glucometers would be “free” and then, during intake calls, offered Medicare beneficiaries a “no cost guarantee,” knowing that the beneficiaries were not yet eligible for a new glucometer or were deceased. Arriva also offered free glucometers to induce customers to continue ordering supplies from Arriva. After providing the glucometers, Arriva also waived or routinely failed to collect Medicare copayments, by failing to send invoices or collection letters, or failing to make collection calls.

Brian Boynton, Acting Assistant Attorney General for the Civil Division, stated that “Paying illegal inducements to Medicare beneficiaries in the form of free items and routine copayment waivers can result in overutilization and waste taxpayer funds,” and vowed to continue pursing violations of the Anti-Kickback Statute.

This settlement resolves claims brought under the qui tam whistleblower provisions of the FCA. The whistleblower, a former Arriva call center employee, received $28,548,749 from the total settlement.

In January 2021, Chilivis Grubman attorneys discussed government enforcement actions related to COVID-19 relief funds and particularly, a guilty plea by Austin Hsu in a large scheme to defraud several COVID-19 relief fund programs.

As discussed in January, Mr. Hsu admitted to fraudulently obtaining COVID-19 relief funds by submitting applications for Paycheck Protection Program ("PPP") loans with false information. He also admitted to submitting false federal tax records supporting his false PPP applications. Mr. Hsu’s scheme involved the creation of a new company, Blueline Capital, which he used to apply for an Economic Injury Disaster Loan (“EIDL”) despite Blueline Capital having no operations or business. As part of the scheme, Mr. Hsu submitted nine fraudulent disaster loan applications seeking over $1 million. Only six of the fraudulent applications were approved, but he received more than $700,000 in relief funds. Mr. Hsu was sentenced to two years in prison for perpetrating the scheme to fraudulently obtain COVID-19 relief funds. He was also ordered to pay a $25,000 fine and $709,104.97 in restitution.

Since the COVID-19 pandemic, CG attorneys have discussed government enforcement efforts related to COVID-19 relief programs. There have been several indictments connected to fraud on COVID-19 relief programs and reports of individuals being sentenced are becoming more frequent. The government has created several task forces to combat such fraud. In May 2021, U.S. Attorney General Merrick Garland announced the establishment of a COVID-19 Fraud Enforcement Task Force, which will coordinate the resources of the DOJ to combat and prevent fraud on COVID-19 related relief programs. The COVID-19 Task Force will also join the Pandemic Response Accountability Committee (“PRAC”) in performing oversight functions related to COVID-19 relief funds. Recipients of COVID-19 relief funds should ensure continued compliance. According to Attorney General Garland, “[t]he Department of Justice will use every available federal tool – including criminal, civil, and administrative actions – to combat and prevent COVID-19 related fraud.”

On August 13, 2021, the U.S. Occupational Safety and Health Administration ("OSHA") issued updated COVID-19 guidance for employers with vaccinated, unvaccinated, and otherwise at-risk employees. OSHA had previously released guidance on June 10, 2021, which focused primarily on unvaccinated workers. This new OSHA guidance discusses vaccinated workers and is intended to address updated recommendations from the U.S. Centers for Disease Control and Prevention ("CDC") in the wake of the Delta variant.

OSHA’s new COVID-19 guidance is intended to assist employers and workers in “areas of substantial or high community transmission,” as identified by the CDC. In line with the CDC, OSHA recommends the following new guidance for fully vaccinated workers:

Additionally, OSHA recommends universal indoor masking for all teachers, staff, students, and visitors in K-12 schools, regardless of vaccine status.

As Chilivis Grubman previously reported, OSHA released a COVID-19 Emergency Temporary Standard ("ETS") for employers in healthcare settings. If the ETS applies to an employer, compliance was required by July 6, 2021. It’s important to note that, unlike the ETS, OSHA’s latest COVID-19 guidance is merely advisory and compliance is not mandatory. However, employers are recommended to follow OSHA’s COVID-19 guidance as much as possible.

On August 10, 2021, the U.S. Department of Justice (“DOJ”) announced that Creaghan Harry, of Florida, was charged for his alleged participation in a scheme that involved submitting over $784 million in false and fraudulent claims to Medicare. This is one of the largest Medicare fraud schemes ever charged, according to the DOJ.

Per the superseding indictment, Mr. Harry, who owns multiple telemedicine companies, used his companies to pay providers to obtain medically unnecessary orders for braces and medication. Mr. Harry allegedly solicited illegal kickbacks and bribes from durable medical equipment (“DME”) suppliers and marketers in exchange for the medically unnecessary DME and medication orders. According to the government, the DME suppliers then used the improper orders received from Mr. Harry’s telemedicine companies to illegally bill Medicare over $784 million, of which Medicare paid over $247 million. Mr. Harry is also alleged to have falsely represented to investors, lawyers, and others that his telehealth companies did not receive kickbacks, but instead received millions from telemedicine services rendered.

Mr. Harry was also charged with tax evasion for allegedly concealing the proceeds from the scheme to avoid paying income taxes. As part of the tax evasion scheme, Mr. Harry allegedly established several shell companies in the names of “straw owners” in the U.S. and foreign countries. The government claimed that Mr. Harry directed DME suppliers and marketers to pay his shell companies instead of the telemedicine companies, and the shell companies transferred money to his telemedicine companies to pay physicians for the medically unnecessary orders. Also, the government noted that Mr. Harry did not file income taxes on the income the shell companies received.

Along with two co-conspirators, Mr. Harry was charged with one count of conspiracy to defraud the government and pay and receive kickbacks, one count of conspiracy to commit money laundering, and four counts of receipt of kickbacks. Mr. Harry faces up to 20 years in jail for the conspiracy to commit health care fraud and wire fraud, 20 years in jail on the conspiracy to commit money laundering, up to five years in jail on each count of tax evasion, up to five years in jail for the conspiracy to defraud the government and pay and receive kickbacks, and up to 10 years in jail for each count of receipt of kickbacks. However, the U.S. Sentencing Guidelines and other statutory factors are considered in reaching a final sentencing determination.

Despite the COVID-19 pandemic, the government has continued its enforcement efforts. In the press release, the DOJ noted that the Health Care Fraud Strike Force has charged over 4,600 defendants since 2007. The government’s enforcement efforts will continue. The press release noted that “the HHS Centers for Medicare and Medicaid Services, working in conjunction with the HHS-OIG, are taking steps to increase accountability and decrease the presence of fraudulent providers.”

QUOTE OF THE MONTH

In June, the Centers for Medicare & Medicaid Services (“CMS”) issued a new advisory opinion on whether a physician practice may qualify as a “group practice” for purposes of the federal physician self-referral law (1877(h)(4) of the Social Security Act and 42 C.F.R. § 411.350 et seq., the “Stark Law”), if it furnishes designated health services (“DHS”) through a wholly-owned subsidiary that is a physician practice, but does not itself qualify as a group practice.

The Stark Law prohibits physicians from making referrals for DHS payable by Medicare to an entity with which the physician (or an immediate family member of the physician) has a financial relationship, unless all requirements of an applicable exception are met. The Stark Law is a highly technical, strict liability statute, and violations can open the door to False Claims Act liability.

One key Stark Law exception for physician practices is the In-Office Ancillary Services Exception, which requires a physician practice to meet the definition of a “group practice” (42 C.F.R. § 411.352(a)). Specially, a group practice must consist of a single legal entity operating primarily for the purpose of being a physician group practice.

The requestor for the advisory opinion is a physician practice in the form of a professional limited liability company (the “Group”), which asserts that it meets the Stark Law definition of a “group practice.” The Group is considering acquiring two other physician practices from a different owner: (i) Subsidiary A, in the form of a professional corporation, and (ii) Subsidiary B, in the form of a professional limited liability company.

After the proposed acquisition, the Group would be the sole owner of Subsidiary A and Subsidiary B, and would continue providing health services (including DHS) through Subsidiary A and Subsidiary B. All clinical employees and contractors of the Subsidiaries would become employed or contracted by Group, and would be designated to work at either the Group office side, or the office sides for the Subsidiaries. The Subsidiaries would maintain their respective Medicare enrollments, would remain credentialed directly with payors, and would use billing numbers assigned to the Subsidiaries for Medicare and other payors, however all revenues and expenses of the Subsidiaries would be treated as revenues and expenses of the Group.

CMS states that, based on the facts the Group presented in its request for the advisory opinion, the Group may furnish DHS through its wholly-owned Subsidiary A and Subsidiary B while continuing to meet the definition of a “group practice” (including the requirement that the group practice be a single legal entity), even though Subsidiary A and Subsidiary B are physician practices that do not themselves meet the group practice definition. In other words, a group practice may qualify as a single legal entity if the group practice furnishes DHS through its own, wholly-owned subsidiaries.

The scope of any CMS advisory opinion is limited to the facts discussed by CMS and certified by the party requesting the opinion. However, CMS’ analysis of the facts can help other healthcare providers identify certain activities that may reduce risk of violating the Stark law in certain types of healthcare business arrangements.

On July 8, the Department of Justice announced that it had reached an agreement with Avanos Medical Inc., a major medical device corporation, to pay more than $22 million to resolve a criminal charge of fraudulent misbranding of its MicroCool surgical gowns. Avanos was alleged to have falsely labeled the gowns concerning their level of protection from fluid and virus penetration. Avanos and the government agreed to a deferred prosecution agreement requiring Avanos to pay $22,228,000, including a victim compensation payment, a criminal monetary penalty, and a disgorgement payment. The deferred prosecution agreement also resolves allegations that the company obstructed a 2016 for-cause inspection conducted by the FDA.

On August 6, the U.S. Attorney’s Office for the Northern District of Georgia announced that Richard J. Randolph, III, formerly the CEO of Randolph Acquisitions, Inc., had been sentenced to six years, six months in prison after pleading guilty to securities fraud. Randolph was also ordered to pay $1,602,200 in restitution to the victims of his fraud. Randolph was the CEO, Chairman of the Board of Directors, and majority shareholder of Randolph Acquisitions, Inc., a company headquartered in Atlanta. In 2017, Randolph had begun to merge Gallagher Management Group, a company Randolph controlled, into Randolph Acquisitions. In the process of merging the companies, Randolph provided the auditor for Gallagher Management false information concerning the company’s assets.

Randolph inflated the value of various assets by up to 900%, falsely claimed ownership of other properties, and falsified bank statements, drastically altering the valuation of the company. Randolph included numerous other misrepresentations in the audited financials of Gallagher Management, including the total amount of assets under management, the types of investment products offered, and the type of clients the company served. Ultimately, a consultant valued Gallagher Management at $31.3 to $33.8 million. Randolph filed the audited financials with the SEC and directed investors to those filings. Randolph also allegedly made other false representations directly to investors concerning the operations and business prospects of Randolph Acquisitions. Over a dozen investors ultimately invested over $1.6 million in Randolph Acquisitions. Following an investigation by the U.S. Secret Service, the Securities and Exchange Commission, and the U.S. Attorney’s Office for the Northern District of Georgia, Randolph pled guilty to numerous charges of securities fraud. Randolph is also the subject of a civil complaint by the SEC, which ultimately resulted in a consent judgment.

Corporate executives must be wary of the public statements they make concerning their companies. While the conduct of Mr. Randolph may seem especially egregious, much more benign comments may subject companies and their executives to liability for securities fraud. Executives walk a fine line between promoting their company publicly and providing unrealistic expectations to investors. Many comments made by executives can be considered non-fraudulent puffery by the government; however, executives who make statements promoting their companies run the risk that they will cross the line to potentially fraudulent conduct. While most of these comments will not rise to the level of criminal conduct, the SEC has a much lower standard of proof in bringing claims of securities fraud against executives and their companies. For that reason, it is imperative that executives consult their attorney before making public comments concerning their companies.

Chilivis Grubman attorneys have discussed government enforcement efforts related to COVID-19 relief programs. Since Congress enacted the various COVID-19 relief programs, the Department of Justice (“DOJ”) has actively prosecuted individuals who defraud these programs. The Fraud Section of the DOJ has prosecuted over 100 defendants in over 70 criminal cases and has seized more than $65 million in illegal proceeds from the Paycheck Protection Program (“PPP”). Moreover, U.S. Attorney General Merrick Garland announced the establishment of a COVID-19 Fraud Enforcement Task Force, which will coordinate the resources of the DOJ to combat and prevent fraud on COVID-19 related relief programs.

There have been several announcements about indictments connected to fraud on COVID-19 relief programs, like the recent announcement related to this $3.6 million scheme, and the government is now announcing the sentencing of individuals guilty of defrauding such programs. On July 30, 2021, The DOJ announced that several individuals were sentenced for their roles in schemes to defraud COVID-19 relief programs. Andre Clark, of Miramar, Florida, pleaded guilty to conspiracy to commit wire fraud in May 2021 after he fraudulently obtained over $488,000 in PPP loan proceeds based on false information. He also admitted to seeking over $6.7 million in PPP loans as part of a broader scheme. Mr. Clark was sentenced to 33 months in prison and ordered to pay $2.97 million in restitution.

Tonya Johnson, who conspired with Mr. Clark, was sentenced to 18 months in prison for fraudulently obtaining $389,000 in PPP proceeds based on false information and documents. Ms. Johnson inflated the number of employees her business employed and its monthly payroll. Another co-conspirator, Tiara Walker, was sentenced to 12 months and a day in prison for fraudulently obtaining $258,000 in PPP proceeds based on false information and documents. Consistent with the scheme, Ms. Walker also inflated the number of employees her business employed and the monthly payroll. Mr. Clark, Ms. Johnson, and Ms. Walker all allegedly conspired with James Stote, whose alleged role included submitting fraudulent PPP applications. Mr. Stote was charged with wire fraud, bank fraud, and conspiracy to commit wire fraud. His case is pending.

According to the press release, these cases were investigated by several agencies, including the IRS, FBI, and the SBA. CG attorneys have discussed the government’s willingness to collaborate with various agencies to bolster its enforcement capabilities. Recipients of COVID-19 relief funds should be diligent in complying with the respective program rules and requirements. As the press release makes clear, the government will prosecute individuals who attempt to defraud COVID-19 relief programs.

Georgia’s new anti-kickback statute relating to drug abuse treatment and education programs took effect on July 1, 2021. The new statute comes as many states adopt similar laws that reflect the Federal Eliminating Kickbacks in Recovery Act of 2018 in an effort to fight patient brokering and abusive practices in substance abuse recovery programs.

Georgia’s new statute prohibits substance abuse treatment providers from engaging in patient brokering and includes limited exceptions and provisions for enforcement and penalties. Specifically, the statute prohibits:

Georgia’s new anti-kickback statute provides for limited exceptions, including (i) certain payments that are not prohibited by the Federal Anti-Kickback Statute (42 U.S.C. Section 1320a-7b(b)); (ii) certain arrangements among members of the same group practice; (iii) payments to healthcare providers for professional services; (iv) commissions lawfully paid to insurance agents; (v) payments to health insurers that cover health, mental health or substance abuse services under a health benefit plan; (vi) certain arrangements between healthcare providers and health insurers/health purchasing groups, or the Medicare or Medicaid programs; (vii) certain insurance advertising gifts (as permitted under OCGA 33-6-4); and (viii) certain payments by substance abuse providers to substance abuse information sources that provide information on request and without charge to consumers about healthcare providers, to help consumers select appropriate healthcare providers.