Why Everyone Settles False Claims Act Cases
Well, almost everyone.
By Alan E. Reider, JD, MPH
In early 2023, an ophthalmologist settled a False Claims Act (FCA) case alleging that the physician had performed unnecessary cataract surgery and Nd:YAG procedures and billed for office visits at a rate above the appropriate level of service.1 The case was filed by a whistleblower who was a former practice employee. As part of the settlement, the ophthalmologist agreed to pay $1,850,000 and enter into a 5-year integrity agreement that essentially allows the Inspector General to monitor the practice for continued compliance. Court documents do not disclose the amount of alleged improper payments to the physician, but most settlements are resolved with a payment of two to three times the amount of single damages. The case is reflective of the hundreds brought each year under the FCA.
This article explores why settlements are reached in most FCA cases.
PENALTIES
A violation of the FCA results in an assessment of triple damages plus a penalty, which, by statute, increases each year. A good rule of thumb places the penalties for current cases at between $10,000 and $20,000 per false claim. In other words, filing a false claim for an unnecessary cataract procedure for which Medicare may reimburse $500 could result in an FCA sanction of at least $11,500 (3 x $500 + $10,000) or more than 20 times the amount initially paid by the Medicare program. Given the risk, the payment of two times the amount of reimbursement is generally a safer option than challenging the US government in court.
EXAMPLES OF FCA CASES THAT HAVE GONE TO TRIAL
Occasionally, a defendant pursues an FCA case on principle. They often pay for it ... literally.
Example No. 1
In a recent FCA case, an oncology practice was found to have filed 214 false claims related to low-paying laboratory services, with damages totaling $756. Why the government pursued this case is a mystery, but the practice refused to settle. At trial, the practice was found liable, and the court entered a judgment against the practice of $1,179,000.2 The settlement amount that the government initially demanded is not mentioned, but it could not have been close to the judgment imposed on the practice.
Example No. 2
A physician refused to settle allegations that he filed false claims totaling $1.1 million. A jury verdict in favor of the US government resulted in a judgment of $27 million.3
Example No. 3
Perhaps the most well-known illustration of the FCA’s impact is the Precision Lens case.4 A distributor of ophthalmic supplies and equipment, Precision Lens was alleged to have caused physicians to submit false claims by providing the doctors with tickets to sporting events, vacation trips, and inflated consulting fees to induce them to purchase products from the company. In February 2023, a jury found that Precision Lens violated the FCA and the Anti-Kickback Statute and assessed damages of $43 million. After calculating the triple damages and imposing the penalties, the trial judge imposed a judgment of $487 million.
Concerns about the draconian nature of penalties under the FCA have been raised. The principal argument presented is that these penalties violate the Eighth Amendment to the US Constitution, which protects against excessive fines. This argument was presented to the trial judge in the Precision Lens case. Although the judge agreed, the reduced judgment was still unreasonable, totaling $216.6 million. Ironically, the most effective defense was the practical reality that the fine was impossible for the company to pay. In the final settlement, Precision Lens agreed to pay the government $12 million.
DISCUSSION
As the examples provided show, challenging the government in an FCA case is extremely risky. Unless and until courts begin to hold that imposing the penalty provision results in constitutionally unsupportable results or the US Congress modifies the terms of the statute, the safer and wiser course is for defendants to find a way to settle their case.
Support from Congress is unlikely because legislators wish to avoid being perceived as soft on crime. There is, however, reason to hope that courts may begin accepting the argument that the penalties generated under the FCA violate the Eighth Amendment to the US Constitution. In an opinion issued in July 2024, a US Court of Appeals vacated a lower court ruling against a medical clinic where single damages of $86,000 resulted in an award of $6.7 million (ie, 78 times the amount of single damages). The case was sent back to the district court for a ruling in light of the US Court of Appeals decision. The risk of litigating FCA cases nevertheless remains high.
1. US Attorney’s Office, Northern District of Georgia. Conyers doctor pays $1,850,000 to resolve allegations that she performed and billed for medically unnecessary cataract surgeries and diagnostic tests. Department of Justice; January 9, 2023. Accessed January 20, 2025. https://media.defense.gov/2023/Jan/11/2003143421/-1/-1/1/230109-CONYERS%20DOCTOR%20PAYS%20$1,850,000.PDF
2. Yates v Pinellas Hematology & Oncology, P.A., 21 F.4th 1288 (11th Cir. 2021). Accessed January 20, 2025. https://casetext.com/case/yates-v-pinellas-hematology-oncology-pa
3. Georgia doctor ordered to pay $27 million for submitting false claims to Medicare. US Department of Justice. October 12, 2023. Accessed January 20, 2025. https://www.justice.gov/usao-ndga/pr/georgia-doctor-ordered-pay-27-million-submitting-false-claims-medicare
4. Precision Lens agrees to pay $12 million to the United States for kickbacks to doctors in violation of the False Claims Act. United States Attorney’s Office for the District of Minnesota. July 25, 2024. Accessed January 13, 2025. https://www.justice.gov/usao-mn/pr/precision-lens-agrees-pay-12-million-united-states-kickbacks-doctors-violation-false
The Anti-Kickback Statute Remains an Enforcement Weapon
The potential penalties for those found in violation are severe.
By Alan E. Reider, JD, MPH
For many years, I have counseled clients about the risks posed by the Anti-Kickback Statute (AKS), which prohibits the offer or solicitation of anything of value in return for referring a patient for services paid for by Medicare, Medicaid, or another federal health care program. The potential penalties for violating the law are severe—from civil financial penalties to criminal incarceration. Three recent cases have demonstrated the wide range of conduct that may trigger AKS liability.
CASE NO. 1
A surgeon agreed to a $200,000 settlement in connection with the solicitation of free product from a pharmaceutical company that he used in surgeries performed outside the United States.1 Because the physician also performed surgery in the United States and used the same product, the US government alleged that, although the free product was used for non-Medicare patients, it was something of value provided in exchange for the use of the product on Medicare patients.
The pharmaceutical company was also targeted and agreed to pay a settlement of $9.75 million. In the past, the government tended to go after pharmaceutical companies and not pursue physicians who were part of the arrangement. This case suggests that the government now intends to hold physicians accountable as well.
CASE NO. 2
A recent settlement focused on a device manufacturer that provided kickbacks to physicians through consulting agreements where the consulting fees exceeded the value of the services provided.2 Additionally, physicians were paid to acquire or license intellectual property that had no value to the manufacturer, holiday parties for the medical practices that used the company’s devices were subsidized, and physicians were provided with free accommodations at a luxury resort for a company conference.
The company and two of its executives agreed to pay a settlement of $12 million. To my knowledge, no physician has been targeted for further enforcement.
CASE NO. 3
In a case currently in litigation,3 the government has alleged that a national company providing vascular services violated the AKS when it offered equity interests in local franchises at below fair market value to referring physicians, based the amount of equity offered on the volume of referrals made, and required physician-shareholders to continue to make referrals as a condition of ownership. Because a federal court recently declined to dismiss the case, it may eventually be settled. Given the potential penalties to be imposed if the company loses at trial, settlement would likely be a wise decision.
CONCLUSION
The AKS has been an effective weapon in the US government’s enforcement arsenal for many years. Like the False Claims Act, the significant penalties imposed for violations of the law often force settlements. Physicians and manufacturers should be vigilant in their relationships to avoid triggering an allegation of a violation of the AKS.
1. Massachusetts surgeon to pay $200,000 to resolve allegations of soliciting and receiving illegal kickbacks. US Department of Justice. May 31, 2024. Accessed January 20, 2025. https://www.justice.gov/usao-ma/pr/massachusetts-surgeon-pay-200000-resolve-allegations-soliciting-and-receiving-illegal
2. Medical device manufacturer Innovasis Inc. and two top executives agree to pay $12m to settle allegations of improper payments to physicians. US Department of Justice. May 29, 2024. Accessed January 20, 2025. https://www.justice.gov/opa/pr/medical-device-manufacturer-innovasis-inc-and-two-top-executives-agree-pay-12m-settle
3. Hussain M, Rosenwald ES. Court declines to dismiss FCA suit alleging nationwide vascular clinic chain violated AKS via referral-based equity allocations. Qui Notes: Unlocking the False Claims Act. March 1, 2024. Accessed January 20, 2025. https://www.arnoldporter.com/en/perspectives/blogs/fca-qui-notes/posts/2024/03/court-declines-to-dismiss-fca-suit
A Stark Reminder
Avoid improper self-referrals as enforcement increases.
By Allison Shuren, JD, and Michael Wood, JD
Recent enforcement trends demonstrate that the US Department of Justice (DOJ) remains steadfast in its long-standing focus on allegations of fraud involving medically unnecessary services and allegations of kickbacks in return for referrals across the health care industry. The agency’s commitment extends to providers, pharmacies, laboratories, and telehealth platforms.
Interestingly, scrutiny of arrangements under the False Claims Act (FCA) based on alleged violations of the federal Physician Self-Referral Law (PSRL) has also increased notably. Commonly referred to as the Stark Law, the PSRL is designed to curb unnecessary utilization of certain health care services (called designated health services [DHS]) by restricting the circumstances under which a physician may refer or order DHS and benefit financially from those referrals. The PSRL imposes strict liability without requiring proof of intent to violate the law.
RECENT ENFORCEMENT ACTIONS
A few recent enforcement actions illustrate some of the difficulties of complying with the PSRL.
Example Nos. 1 and 2
A May 2023 settlement between Massachusetts Eye and Ear and the DOJ was based on alleged violations related to the physician compensation formulas used.1 This concept of inappropriate compensation was also evident in a December 2023 DOJ settlement for $345 million with Community Health Network. The latter is one of the largest FCA settlements in history and was based on allegations of improper self-referrals.2 In the case against Community Health Network, the government alleged that (1) bonuses paid to employed physicians were based on the number of their referrals and (2) overall compensation paid to employed physicians was set above fair market value.
Example No. 3
In October 2023, Cardiac Imaging and its founder, owner, and CEO agreed to pay more than $85 million to resolve allegations that the company violated the FCA, the federal Anti-Kickback Statute, and the PSRL through payments in excess of fair market value to referral sources for diagnostic test supervision.3,4
Example No. 4
In March 2024, the DOJ announced a $1.8 million settlement with a physician stemming, in part, from his allegedly submitting or causing to be submitted claims for diagnostic testing in violation of the PSRL.5,6
UNDERSTANDING THE PSRL AND EXCEPTIONS TO IT
There are many nuances to the PSRL. At a high level, however, the statute and its complex implementing regulations prohibit providers (or their immediate family members) from profiting from self-referrals for DHS payable by Medicare or Medicaid. For example, the PSRL prohibits physician referrals of a patient for DHS to the physician’s own group practice in which the provider or an immediate family member has a financial interest, either through ownership or compensation, unless an exception affirmatively permits the referral.
Together, the statute and regulations contain numerous exceptions to allow useful referrals and financial relationships while also limiting problematic referrals. These exceptions are technical and require complete adherence to their requirements to gain the legal protection they offer. Conduct that does not fit under any exception could violate the PSRL.
Many of the exceptions focus on the specific type of arrangement that gives rise to a physician’s financial relationship, such as exceptions for space, equipment, or personnel lease. Others are more general such as exceptions for physician employees and independent contractors. Still others address services furnished to beneficiaries, such as the exceptions for physician services or in-office ancillary services.
Important to many of the exceptions is attention to the compensation paid to the physician. Generally, it must be consistent with fair market value and not based on the value or volume of the referrals.
It is worth noting that some states have implemented their own versions of the PSRL, often referred to as mini-Stark Laws. These laws may differ in scope, being either narrower or broader than the federal statute. Variations can include the types of payors covered (eg, extending beyond Medicare and Medicaid), definitions of key terms (eg, which family members are included), and the applicability of exceptions.
CONCLUSION
As the recent enforcement environment shows, entities that have financial relationships with physicians that trigger the PSRL should audit these relationships for compliance with all of the technicalities of the law. If noncompliance is found, corrective action should be taken, and any resulting overpayment liabilities should be addressed.
1. Massachusetts Eye and Ear agrees to pay over $5.7 million to resolve False Claims Act allegations. U.S. Attorney’s Office for the District of Massachusetts, May 24, 2023, https://www.justice.gov/usao-ma/pr/massachusetts-eye-and-ear-agrees-pay-over-57-million-resolve-false-claims-act.
2. Indiana Health Network agrees to pay $345 million to settle alleged False Claims Act violations. Office of Public Affairs, US Department of Justice. December 19, 2023. https://www.justice.gov/opa/pr/indiana-health-network-agrees-pay-345-million-settle-alleged-false-claims-act-violations
3. US Department of Justice. Mobile cardiac PET scan provider and founder to pay $8.5 million to resolve allegedly unlawful billing practices. January 5, 2023. Accessed January 27, 2025. https://www.justice.gov/opa/pr/mobile-cardiac-pet-scan-provider-and-founder-pay-85-million-resolve-allegedly-unlawful
4. Cardiac Imaging company and founder to pay historic $85M settlement. US Attorney’s Office for the Southern District of Texas. October 10, 2023. https://www.justice.gov/usao-sdtx/pr/cardiac-imaging-company-and-founder-pay-historic-85m-settlement
5. US Department of Justice. Physician pays $1.8M to settle False Claims Act liability. November 7, 2022. Accessed January 27, 2025. https://www.justice.gov/usao-sdtx/pr/physician-pays-18m-settle-false-claims-act-liability
6. Physician pays $1.8M to settle False Claims Act liability. US Attorney’s Office for the Southern District of Texas, March 22, 2024, https://www.justice.gov/usao-sdtx/pr/physician-pays-18m-settle-false-claims-act-liability
A New Area of Compliance Risk?
Lessons from a recent fraud case.
By Alan E. Reider, JD, MPH
More than a decade ago, CMS released guidance on charging for the use of a femtosecond laser during cataract surgery. Last year, I learned for the first time of an investigation into an alleged violation of these rules.
CMS GUIDANCE
The development of a femtosecond laser for use in cataract surgery triggered a billing controversy. Initially taking the position that the laser was equivalent to a golden scalpel, CMS decided that neither would Medicare pay an additional amount for the use of a femtosecond laser nor could patients be charged an additional amount. Representatives from ophthalmology societies and industry met with CMS to provide additional information about the technology’s use and why an additional charge was justified.
In response, in November 2012, CMS published guidance related to billing when a femtosecond laser is used in conjunction with cataract surgery. The agency restated its position that a femtosecond laser provides no clinical benefit during cataract surgery when a conventional IOL is implanted and therefore continued to prohibit physicians and facilities from billing patients for the laser’s use. CMS did acknowledge, however, that a femtosecond laser provides a clinical benefit when a premium (eg, toric or presbyopia-correcting) IOL is implanted. Guidance from the agency therefore allows patients to be billed an additional amount when a femtosecond laser is used in conjunction with the implantation of a premium lens during cataract surgery. CMS also acknowledged that creating a laser arcuate incision for the treatment of astigmatism is a noncovered procedure and patients may thus be charged for this use of a femtosecond laser.
The guidance document concludes with a mild warning to physicians who use the laser for all cataract procedures regardless of the type of IOL implanted. Specifically, CMS noted that, even if a patient receiving a conventional IOL is not charged for the use of a femtosecond laser, the agency considers the routine use of this technology to reflect the physician’s standard of care; in these circumstances, the practitioner is prohibited from charging any patient for use of the laser, including those who receive premium IOLs. CMS stated that this prohibition does not apply to exceptional cases where the use of a laser, rather than a scalpel, can be clinically justified.
AN ALLEGED VIOLATION
To my knowledge, there were no allegations that a practice had violated the CMS guidance on femtosecond lasers until 2024, when a US Attorney’s Office issued subpoenas in connection with allegations that a practice routinely used a femtosecond laser during all cataract surgeries performed, regardless of whether a premium or conventional IOL was implanted. It is my understanding that the investigation is ongoing and there has been no resolution.
The extent to which this issue generates significant enforcement interest is unclear. Even if it is determined that the CMS guidance was violated, the Medicare program would not be impacted financially. Nevertheless, if cases like this one are pursued, the potential sanction could be severe. The Medicare program could take the position that billing patients for what CMS considers a covered service is an assignment violation, punishable by a civil monetary penalty and/or exclusion from Medicare. Practices and facilities that bill for the use of a femtosecond laser should therefore review the provisions of the 2012 CMS guidance to be sure that they comply with its provisions.
