$9.2 Million Healthcare Kickback Settlement Highlights Ongoing FCA Enforcement

by Johanna C. Richter and Rrita Osmani

A recent $9.2 million settlement by hospice company Creative Hospice Care, Inc. Illustrates the power of the False Claims Act (“FCA”) in combating healthcare fraud. In 2024, the Department of Health and Human Services collected recoveries totaling $1.67 billion from FCA cases.

How does the Anti-Kickback Statute intersect with False Claims Act enforcement?

The  False Claims Act (“FCA”), 31 U.S.C. § 3729, et seq., is a civil war era statute that imposes civil liability when someone who knowingly presents a false or fraudulent claim or record for payment to the government. The law was originally enacted to punish civil war defense contractors who furnished  sick animals and defective weapons to government  forces, but is now used to penalize other forms of fraud.

Enacted in 1972, the Anti-Kickback Statute (“AKS”) prohibits the inducement or reward of referrals for services that are billed to public healthcare programs like Medicare and Medicaid. The ASK authorizes  whistlerblowers who undercover ASK violations to bring qui tam actions, or private lawsuits on behalf of the government to recover the fraudulently obtained funds, under the False Claims Act.  These whistleblowers, called relators, receive a percentage of the government’s recovery if the suit is successful. The AKS prohibits a wide range of behaviors, including offering something of value in exchange for service referrals or overcharging the government for drugs provided to Medicare beneficiaries.  Healthcare fraud are actionable under the FCA includes:

• Undisclosed Pharmaceutical Benefit Manager Negotiated Rebates: Pharmaceutical Benefits Managers (“PBMs”) are entities that negotiate rebates with drug manufacturers on behalf of health insurance companies. When PBMs fail to disclose these rebates to government insurers, they can incur FCA liability.

• Sham speaker programs: Pharmaceutical companies often host speaker programs where medical professionals are compensated to educate other medical professionals on a particular drug. However, these programs can create concerns that medical professionals will be inappropriately induced to prescribe. Programs that feature alcohol or meals exceeding a modest value, particularly when alcohol is offered for free. FCA liability can also attach if speakers are compensated at a rate that exceeds the fair market value for the speaking services, or compensation is based on the number of patients referred.

• Inappropriate care: In the context of hospice care, patients who have been certified as terminally ill  may receive a Medicare hospice benefit (MHB) billed to the government. Healthcare providers claiming Medicare reimbursement for this service must support this certification with paperwork that reflects a medically sound basis for the clinical judgment, or they can be subject to FCA liability, in addition to criminal liability.

What were the specific kickback allegations against Creative Hospice and its CEO?

The whistleblowers in the Creative Hospice Care, Inc. case alleged that Creative Hospice paid kickbacks as sham medical directorships to induce medical directors to refer patients to Creative Hospice. While medical directorships can be acceptable under the FCA when the payments reflect the fair market value for bona fide services the physicians provide, these arrangements are illegal when directors are compensated to refer patients to a care facility.

In this case, the relators brought three different lawsuits under the qui tams provisions of the FCA, alleging that medical directors received inappropriate compensation in the form of a signing bonus and monthly stipend that increased or decreased based on the number of referrals doctors made. United States of America, ex rel. John Doe, et al. v. Homestead Hospice, et al., No. 1:15-cv-00840-TWT; United States of America and State of Georgia, ex rel. Cletus William Cole v. Homestead Hospice Management, LLC, et al., No. 1:22-cv-04242-MLB; and United States of America, ex rel. Renee Luchtman, et al. v. Homestead Hospice Management, LLC, et al., No. 1:21-cv-04952-TWT.

Steps Potential Whistleblowers Can Take

The qui tam provision of the FCA plays a vital role in policing fraud, and thus whistleblowers are afforded strong legal protections under the Act. In the event a whistleblower faces retaliation by their employer for reporting violations, the FCA gives whistleblowers the direct right of action to sue for damages. Successful plaintiffs can win reinstatement, double back pay, and compensation for legal fees.

If you suspect fraudulent activity in a healthcare setting, you can consult with experienced attorneys who can help you understand your rights and the best course of action.