Municipal Bond Fraud – Multiple Banks – $70 million

Our firm is proud to be a member of the legal team representing the whistleblower in a recent municipal bond fraud settlement.  The $70 million qui tam settlement was with eight of the nation’s largest banks.  It is the largest reported settlement ever under the Illinois False Claims Act.

Largest Reported Recovery Under the Illinois False Claims Act

Our client, Edelweiss Fund LLC, alleged that various affiliates of eight large banks engaged in widespread fraud and collusion in the fees they charged and the interest rates they set for tax-exempt municipal bonds known as VRDOs.  The defendant banks included: Bank of America, Barclays, Citigroup, JPMorgan Chase, Morgan Stanley, Fifth Third Bancorp, BMO, and William Blair.

Specifically, Edelweiss alleged that, while Illinois hired the defendant banks to market and price the bonds at the lowest possible interest rates, they instead engaged in a scheme to inflate the rates to collect millions in fees without providing the services for which they were retained.  Edelweiss further alleged that the banks did this, among other reasons, to avoid having the bonds tendered back to them.

The Relator Has Alleged that the Municipal Bond Fraud Extended Beyond Illinois

Edelweiss has brought similar lawsuits alleging the same municipal bond fraud scheme.  Three additional cases — in California, New York, and New Jersey — are continuing.

Edelweiss’s principal is Johan Rosenberg.  He has more than 30 years’ experience advising municipalities on VRDOs and other types of municipal bonds.

I am gratified by the settlement and hopeful we will obtain similar results for the other states.  My goal continues to be securing for my clients and other state and local governments the lowest-cost municipal bond financing possible to maximize the overall benefit the public receives from the critical government projects these VRDOs fund.

–Johan Rosenberg

Under the Illinois False Claims Act and numerous other states, whistleblowers can bring lawsuits on behalf of the government against those committing fraud against the government. In return, successful whistleblowers can receive up to 30% of what the government recovers from the lawsuit.

For its successful settlement in Illinois, Edelweiss received the maximum reward of 30% of the government’s $48 million portion of the settlement.  The remaining $22 million went towards Edelweiss’ legal fees and expenses in bringing the suit.

The Legal Team

Edelweiss is represented in these matters by a large team of lawyers across the country.  In addition to Whistleblower Law Collaborative LLC, the firms include Constantine Cannon, Schneider Wallace Cottrell Konecky LLP, McKool Smith, Behn & Wyetzner, DiCello Levitt LLP, Steyer Lowenthal Boodrookas Alvarez & Smith LLP, Stone & Magnanini LLP, and Howard Law.  Erica Blachman Hitchings and David Lieberman are the WLC attorneys working on the Edelweiss matters.

 

Massachusetts Eye and Ear (MEEI) – $5.7 Million

In May 2023, the United States settled a False Claims Act case that our client brought against Massachusetts Eye and Ear Infirmary (“MEEI”) and other defendants in 2018. Our client alleged that some of the physicians working for Massachusetts Eye and Ear received kickbacks to induce referrals to MEEI for outpatient procedures in violation of the Stark Law, the Anti-Kickback Statute (“AKS”), and False Claims Act. The False Claims Act settlement requires Massachusetts Eye and Ear to pay $5.7 million, plus interest.  A portion of MEEI’s payment will be paid to our client.

Massachusetts Eye and Ear Compensation Arrangements Violated Stark Law

Massachusetts Eye and Ear made improper incentive payments to certain physicians. As a result, these financial relationships violated the Physician Self-Referral Law (commonly known as the Stark Law) and the Anti-Kickback Statute (“AKS”).  Therefore, when the physicians referred their patients to MEEI for procedures and MEEI submitted claims to government health care programs such as Medicare, it violated the False Claims Act.

Terms of The Massachusetts Eye and Ear False Claims Act Settlement

Under the terms of the False Claims Act settlement, MEEI will pay $5.7 million plus interest to the settlement.

Our Client Will Receive an Award Under the False Claims Act

Our client provided government prosecutors with information about the alleged fraud. In 2018, we filed a qui tam complaint under the federal False Claims Acts. Under the False Claims Act, a private citizen (known as a “relator”) who suspects or knows of fraud against the government can act as a whistleblower and file a sealed complaint on behalf of the government. For successful cases, the government pays a share – between 15% and 30% – to the relator. In this case, our client will receive 17 percent of the recovery.

The Government Praises the Settlement

Here, the United States contended that MEEI’s incentive payments created a financial relationship between MEEI and those physicians. Because of that financial relationship, referrals by those physicians to MEEI were improper and violated the Stark Law.

Stark Act violations drive up the overall costs of the health care system due to fraud and abuse. We will continue to vigorously investigate False Claims Act violations arising out of improper financial relationships between hospitals and physicians.

–Acting United States Attorney Joshua Levy.

We all rely on our health care providers to make treatment decisions based on clinical needs, not financial ones arising out of improper relationships between physicians and hospitals. Today’s settlement with Massachusetts Eye and Ear demonstrates the FBI’s ongoing commitment to ensure that publicly funded health care programs to which we all contribute and on which we all depend are not abused.

— Joseph R. Bonavolonta, Special Agent in Charge of the Federal Bureau of Investigation, Boston Division.

In announcing the settlement, Phillip M. Coyne, Special Agent in Charge of the Department of Health and Human Services, Office of Inspector General (HHS-OIG) said:

This settlement is a warning to other health care entities that seek to boost their profits by entering into improper financial arrangements with referring physicians. Working with our law enforcement partners, we will continue to investigate such deals to prevent financial arrangements that could undermine impartial medical judgement, drive up health care costs, and corrode the public’s trust in the health care system.

Whistleblower Law Collaborative

As this case illustrates, whistleblowers are a critical part of fraud enforcement. Last year, according to DOJ, qui tam cases resulted in over $2.2 billion in False Claims Act recoveries.

Whistleblower Law Collaborative LLC, based in Boston, devotes its practice entirely to representing clients nationwide in bringing actions under the federal and state False Claims Acts and other whistleblower programs. Among the firm’s many successes is a $234 million settlement with Mallinckrodt under federal and state False Claims Acts for Medicaid rebate fraud.

Oncology Physician Practice – $1 Million

An oncology physician practice who did business with Cardinal Health paid the United States and the State of Michigan agreed to pay $1 million to resolve allegations that the practice accepted kickbacks from Cardinal in connection with the purchase of specialty pharmaceutical products from Cardinal. The physician practice was one of several such practices sued along with Cardinal Health. In January 2022, Cardinal Health agreed to pay the United States and the states $13.125 million plus interest to resolve allegations that it induced physician practices such as this one to purchase specialty pharmaceutical products from it by paying customers remuneration in advance of the practice making any drug purchases and not in connection with specific purchases. The practices in turn submitted claims for payment to Medicare and Medicaid programs that were tainted by these kickbacks. Litigation is ongoing as to several other named physician practice defendants.

Holding Both Sides of a Kickback Scheme Accountable

Under the Anti-Kickback Statute, 42 U.S.C. § 1320a-7b(b), both sides of a kickback arrangement bear liability. It is important to hold both sides of the alleged kickback scheme (here, the payor/Cardinal and the payees/physician practices) accountable. Using the False Claims Act to do so protects the public fisc from paying claims tainted by kickbacks and protects patients. As the U.S. Attorney for the District of Massachusetts said at the time of the Cardinal settlement:

Kickback schemes, such as this one, have the potential to pervert clinical decision-making and are detrimental to our federal health care system and taxpayers.

Special Agent in Charge of the FBI Boston office added at the time: “Kickbacks cost health benefit programs millions of dollars in potentially fraudulent claims.”

Whistleblower Law Collaborative

Whistleblower Law Collaborative LLC is based in Boston. It devotes its nationwide practice to representing whistleblowers bringing actions under the federal and state False Claims Acts and other whistleblower programs. Under the False Claims Act, a private citizen who knows of fraud against the government can file a sealed complaint on behalf of the government. If the case is successful, the relator is entitled to a share of the government’s recovery. Among the firm’s many successes is the government’s $885 million settlement with AmerisourceBergen, another pharmaceutical drug wholesaler, for illegal repackaging of injectable drugs into pre-filled syringes.

DermaTran Health – $6.87 Million

In October, 2022, the United States settled a False Claims Act case brought one of our clients against DermaTran Health Solutions, LLC, a compounding pharmacy based in Rome, Georgia, its parent State Mutual Insurance Company, President Delos Yancey, and other defendants. Under the Agreement, Defendants agreed to pay over $6.87 million to resolve allegations that they violated the False Claims Act by waiving copays, charging the government higher prices than permitted, and trading federal healthcare business with other pharmacies.

Client’s False Claims Act Suit Alleges Fraud By Compounding Pharmacy and Its Parent

As alleged in our Complaint,Yancey caused State Mutual Insurance subsidiaries to bankroll DermaTran Health Solutions, LLC, to sell “compounded” pain creams. Compounded drugs are drugs created by a pharmacy pursuant to a doctor’s order. These are often described as “custom” made formulations, but the vast majority of DermaTran’s compounds consisted of a very few formulations.  Another State Mutual Insurance Company subsidiary named Pharmacy Insurance Administrators, LLC (“PIA”), was created to handle the billing for DermaTran.

Compound pain creams were very lucrative. Government-backed health insurance programs such as TRICARE (for the military) and the Federal Employees Health Benefits Program (for federal workers) would often reimburse thousands of dollars for these prescriptions. But the government programs imposed certain restrictions to limit spending. Most notably, these programs require that pharmacies charge them no more than the “usual and customary price”—or the price it would charge to cash-paying, uninsured patients.

In the interests of profit, the defendants ignored these restrictions. For example, they would represent to TRICARE that the hundreds or thousands of dollars they charged veterans was the “usual and customary” price for that drug. However, defendants regularly, and often the same day, sold the exact same prescription for as little as $30 when a patient’s insurance would not pay.  Similarly, defendants utilized various schemes to avoid charging copays to patients to make them indifferent to the high prices they charged insurers.  In some instances, DermaTran sales personnel offered and paid kickbacks to doctors to induce them to write prescriptions to the pharmacy.

Eventually, insurers began to terminate DermaTran from their networks. To keep the scheme alive, DermaTran, began transferring prescriptions to other pharmacies which kicked back part of the proceeds to DermaTran.  Three other pharmacies, also named as defendants, participated in this prescriptions-trading scheme and settled claims:  Legends Pharmacy (in Texas), Lake Side Pharmacy (in Alabama), and TriadRx (in Alabama).

Terms of The DermaTran False Claims Act Settlement

Under the terms of the False Claims Act settlement, PIA contributed $6.5 million plus interest to the settlement. It also paid damages to our client for retaliating against her, which is illegal under the FCA.

DermaTran was sold to a third-party, the proceeds of that sale were also turned over to the government as part of the settlement. Legends Pharmacy will pay $59,293. TRIAD Rx, Inc. will pay $166,547. Lake Side Pharmacy is no longer in business, but former owners of Lake Side Pharmacy will pay $110,724.

The Government Praises the Settlement and Thanks Our Client

The affected Government Agencies praised the settlement and thanked our client for coming forward:

Waiving copays and charging the government higher prices leads to overutilization and costs federal programs millions of dollars in unnecessary spending, Our office will continue to enforce the False Claims Act to recover government payments that result from such misconduct.

Northern District of Georgia U.S. Attorney Ryan Buchanan.

Health care fraud abuse like this case erodes the trust patients have in the health care system, the FBI will not stand by when there are allegations of companies operating corporate wide schemes to illegally line their pockets.

Keri Farley, Special Agent in Charge of FBI Atlanta.

Fraud through compounding pharmacies bilked billions out of TRICARE and undermined the integrity of our healthcare system designed to care for our service members and their families, I appreciate the partnership among involved law enforcement agencies and the U.S. Attorney’s Office to bring this matter to justice.

Cynthia Bruce, Special Agent in Charge of the Department of Defense, Office of Inspector General, Defense Criminal Investigative Service (DCIS).

The OPM OIG has no tolerance for businesses that knowingly take advantage of FEHBP, violating the rules to make a profit, I am extremely proud of the hard work of our investigators, analysts, and other law enforcement partners because overcharging the government is not a victimless crime – it contributes to higher premium prices and harms the financial integrity of the FEHBP.

Amy K. Parker, Special Agent in Charge, OPM OIG.

The U.S. Postal Service, Office of Inspector General, will continue to tirelessly investigate those who commit frauds against federal benefit programs and the U.S. Postal Service. This settlement is a clear message that the USPS OIG is dedicated to rooting out corruption and bringing to justice those responsible for these crimes, The USPS OIG would like to thank our law enforcement partners and the Department of Justice for their efforts in this investigation.

Special Agent in Charge Matthew Modafferi of the U.S. Postal Service, Office of Inspector General Northeast Area Field Office.

Health care providers that try to boost their profits by submitting fraudulent claims to Federal health care programs threaten the integrity of those programs and drive up prices for everyone, we work tirelessly alongside our law enforcement partners to protect the integrity of Federal health care programs and to ensure the appropriate use of taxpayer dollars.

Tamala E. Miles, Special Agent in Charge with the U.S. Department of Health and Human Services Office of Inspector General.

Our Client Received an Award of over $1,400,000 Under the False Claims Act

Our client was hired by State Mutual Insurance Company to provide accounting services for Dermatran.  While there, she repeatedly expressed concerns about the practices she witnessed. However, after being repeatedly ignored by her employers she approached our firm to ask for assistance in providing government prosecutors with information about the alleged fraud. In 2017, we filed a complaint under the federal False Claims Act.

Under the False Claims Act, a private citizen (known as a “relator”) who suspects or knows of fraud against the government can act as a whistleblower and file a sealed complaint on behalf of the government. If the case is successful, the relator is entitled to a share – between 15% and 30% – of the government’s recovery.

In this case, our client will receive $1,434,775 or nearly 21% of the funds received by the government in addition to a payment from defendants as compensation for their retaliation against her.

The process of this suit was long, stressful and sometimes scary – but it was necessary. When you see people in business who take advantage of the system, without regard to the harm it causes to veterans, hard-working citizens, and taxpayers, you can’t stand by silently. I am grateful to my amazing legal team, for standing by my side throughout.

As this case illustrates, whistleblowers are a critical part of fraud enforcement. Last year, according to DOJqui tam cases resulted in over $1.6 billion in False Claims Act recoveries. The False Claims Act is one of the government’s most powerful tools to combat health care fraud.

Whistleblower Law Collaborative LLC attorney David W. S. Lieberman praised the outstanding work of Assistant U.S. Attorneys Anthony DeCinque, Neeli Ben-David, and Armen Adzhemyan. “This was an extremely complex fraud, but the attorneys in the Northern District of Georgia worked hand in glove with relator to understand the scheme and bring the case to a successful resolution.”

WLC attorneys Bruce Judge and Suzanne Durrell added their appreciation for WLC’s courageous client who sounded the alarm on this important issue.  “Our client could easily have kept silent about the fraud she witnessed, but she did the right thing and came forward to tell the government about a serious fraudulent scheme that was draining millions from veterans and other vulnerable patients.  We view this settlement as a clear vindication of her difficult choice to come forward.”

The Whistleblower Law Collaborative is also grateful for the assistance provided by our co-counsel, Julie Bracker and Jason Marcus of Bracker and Marcus and Joshua Russ and Allison Cook of Reese Marketos.