United States: False Claims Act Alert

In an uncommon move, the federal government has chosen to pursue a False Claims Act (FCA) fit versus a personal equity company based upon a supposed commission plan at its drugstore portfolio company to promote sales of items based on federal repayment. The addition of the personal equity company as a called offender in the Complaint might show an increased desire by the federal government to pursue the financial investment management companies backing healthcare business and other entities that get federal funds. The FCA sets a high bar to develop that company owners or directors purposefully triggered the presentment of incorrect claims. The Complaint thus offers insight into the level of involvement in the operations of a portfolio company the federal government considers adequate to pursue a personal equity company for the supposed misbehavior of its portfolio company. The case also offers insight into actions personal equity companies ought to require to minimize their possible direct exposure to liability under the FCA.

In December 2017, the United States intervened in a qui tam fit relators Marisela Carmen Medrano and Ada Lopez submitted versus accused Diabetic Care RX, LLC d/b/a Patient Care America (” Patient Care”), a drug store arranged under Florida law; Patrick Smith and Matthew Smith, 2 Patient Care executives; and Riordan, Lewis & Haden, Inc. (RLH), a personal equity company holding a bulk interest in Patient Care.

In its Complaint in Intervention, submitted February 16, 2018, the federal government declares that the accused defrauded the United States of roughly $85 million through a plan where Patient Care offered prohibited commissions to independent online marketers to refer clients for substance drug prescriptions compensated by TRICARE in offense of the FCA and the Anti-Kickback Statute.

The FCA enforces liability on anybody who “intentionally provides, or triggers to be provided, an incorrect or deceptive claim for payment or approval” or who “intentionally makes, utilizes, or triggers to be made or used, an incorrect record or declaration product to an incorrect or deceptive claim.” 31 U.S.C. § 3729(a) (1 )( A)–( B). The Anti-Kickback Statute restricts the knowing and willful solicitation or invoice of any reimbursement in exchange for the recommendation of the federal healthcare business. 42 U.S.C. § 1320a-7b( b)( 2 ). A claim that consists of products or services arising from an infraction of the Anti-Kickback Statute “makes up an incorrect or deceitful claim” under the FCA. 42 U.S.C. § 1320a-7b( g). Infractions of the FCA go through treble damages and civil charges of in between $10,957 and $21,916 per claim.

The federal government declares Patient Care (formerly running as Diabetic Care RX, LLC) participated in a kickback plan through which it’sed a good idea unlawful commissions to independent marketing business to refer clients for topical substance drug prescriptions repaid by TRICARE. As part of this supposed plan, Patient Care apparently controlled the formulas of prescriptions to guarantee the greatest possible compensations, released prescriptions without patient approval or a patient- medical professional relationship and collaborated with among the marketing business to cover the expense of patient copayments to cause extra prescriptions.

Although the claims in the Complaint are not especially uncommon for a civil FCA enforcement case, the Patient Care action is noteworthy because the federal government chose to pursue not only Patient Care and its individual officers, but also RLH, the personal equity company managing Patient Care. The federal government’s claims– to which the accused’s have not yet had a chance to react– a supply that RLH obtained a controlling interest in Patient Care in 2012 with the objective of increasing Patient Care’s value and selling the business for earnings within 5 years. RLH supposedly set up 2 of its partners as officers of Patient Care and as officers and board members of the company that then- handled Patient Care. The Complaint declares that RLH directed Patient Care’s entry into the topical substance drug business, needed Patient Care’s CEO to seek advice from RLH partners before getting in particular agreements, and moneyed commission payments to online marketers when they ended up being due prior to Patient Care’s invoice of TRICARE compensations. The Complaint does not declare that Patient Care is the change ego of RLH.