White Collar Year in Preview: Healthcare Fraud Trends in 2020

Editors’ Note: This is the second in our start-of-year series examining important trends in white collar law and investigations in the coming year. Our previous entry discussed SEC enforcement in 2020. Up next: a look at trends in anti-corruption and under the Foreign Corrupt Practices Act. Look for additional posts throughout the month of January.

2019 saw ongoing action in the healthcare space. While the government continued to prosecute claims under enforcement staples such as the Anti-Kickback Statute and False Claims Act, the focus was undoubtedly on confronting the opioid epidemic, in actions brought by federal, state, and municipal governments targeting a variety of individuals and companies. As we look to the year ahead, we draw on some 2019 indicators that inform the following trends:

Opioid-Related Enforcement Will Be Extremely Active.

The Insys Therapeutics trial in the District of Massachusetts ending in May 2019 was one of the most high-profile—and successful—prosecutions in recent past. The founder and four former executives of Insys Therapeutics were convicted in May 2019 for bribing medical practitioners to prescribe a highly-addictive fentanyl spray intended for cancer patients when the medication was not medically necessary. The conspiracy involved the use of pharmacy data to identify practitioners who prescribed high volumes of opioids or who had the capacity to do so. The first successful prosecution of its kind, the Insys verdict likely presages other similar prosecutions in 2020.

In a sign of the sheer volume of opioid cases, opioid cases have, since late 2017, been consolidated under a single federal judge in Ohio for pre-trial matters. In the past year, that same judge set an October 2019 trial date for two matters within his district. The landmark proceeding was brought by two counties against some of the largest opioid distributors. The case would have been the first trial in the National Prescription Opiate Litigation, and analysts were watching closely to gauge the strength of the plaintiffs’ legal theories. Instead, it settled on the eve of trial. The settled case is among more than 2,300 opioid cases the judge is currently overseeing, so we will likely see more action in Ohio, and more cases set for trial nationally, in 2020.

Expect Continued Focus on Physician Groups, Not (Just) Big Pharma.

Big pharma has long been an enforcement priority for the government. A recent investigation by the Drug Enforcement Administration did nothing to alter that enforcement priority, showing that drug companies flooded the United States with 76 billion oxycodone and hydrocodone pills from 2006 through 2012. Just six pharmaceutical companies were responsible for the distribution of 75 percent of those pills.

More recently, however, the government has targeted others in the distribution chain, prosecutions we can expect to continue, particularly against physicians and physician practice groups. Targeting “pill mills” in addition to big pharma, the government demonstrated its willingness to go after the variety of individuals and entities it views as culpable. In Texas, the DOJ charged 58 individuals for their involvement in pill mill clinics. In Pennsylvania, one 27-year-old pharmacy employee was convicted in an illegal oxycodone pill mill scheme. In Georgia, a pill-mill doctor was convicted on 16 counts of healthcare fraud for illegally dispensing drugs, including opioids. All over the country, individuals at all levels of prescription and distribution are being held accountable for their role in the opioid crisis. This trend has important implications not just for the physicians themselves, but for the distributors, who must ensure they have the compliance systems and processes in place to identify over-prescription and utilization.

Look to State and Local Enforcement Actions to be Aggressive.

Not surprisingly, perhaps, given the effects of the opioid epidemic are felt locally, some of the most important actions are occurring at the state and local levels. In New York, a state trial is set for the end of January for claims brought by New York Attorney General and Nassau and Suffolk Counties against a group of drug manufacturers and distributors. In Texas, trials brought by Dallas and Bexar Counties are set for trial in October 2020, the first two scheduled in the ongoing MDL litigation in Texas. Oklahoma obtained a $465 million verdict against Johnson & Johnson for its role in the opioid crisis in 2019, a ruling the pharmaceutical company threatened to appeal. And more than 25 states rejected the proposed settlement with Purdue Pharmaceuticals, owned by the Sackler family, with at least some state Attorney Generals taking the position that liability must extend to the owners themselves. Certainly the public interest in seeing this health crisis remedied will continue to fuel enforcement in this area—and hopefully, help foster better health outcomes.

This aggressive approach by state and local governments with respect to opioid-enforcement aligns with a more general trend of state governments taking the lead in healthcare actions that were more frequently the purview of DOJ and HHS. In occupying the healthcare space more generally, the states appear to be filling at least a perceived void by DOJ. For example, at the end of 2019, Connecticut successfully prosecuted its first state False Claims Act to verdict.

Private Equity Funds Are Now Viable Targets.

Private equity firms should expect increased scrutiny of their healthcare holdings after a September 2019 settlement of FCA claims between the DOJ, a compounding pharmacy and its executives alleged to have engaged in kickbacks, and, notably, the private equity firm that held the pharmacy. See Medrano v. Diabetic Care Rx LLC, 0:15-cv-62617 (S.D. Fl.). In Medrano, compounding pharmacy Diabetic Care Rx LLC and its private equity owner Riordan Lewis & Haden Inc. (“RLH”) reached a $21.4 million settlement to resolve a $70 million kickback claim. RLH was accused of playing a key role in the scheme with significant oversight over the pharmacy. Despite arguing that the government failed to show its role in the fraud, RLH negotiated a settlement to bring the lawsuit to a close. Such a move was perhaps wise. Indeed, just one year prior, in U.S. ex rel. Martino-Fleming v. South Bay Mental Health Center, 0:15-cv-13065, the DOJ declined to intervene—and in that case, proceeding with the state’s intervention only, the District of Massachusetts refused to dismiss the holding company.

This suggests a growing interest by the government to hold all potential parties accountable for healthcare violations and a judicial willingness to accept such theories. And given private equity funds’ deep pockets, it is unlikely this enforcement practice stops any time soon. Funds should be alert to their responsibilities in accepting board positions, providing oversight, and generally exerting control over the companies within their portfolios. Investors may not be able to take their money and run without facing potential liability.

Home Health Will Remain a Focus.

Given the continued prevalence of home health companies failing to comply with Medicare requirements, including by prescribing services that are not medically necessary, home health will continue to be an area of focus. A September 2019 HHS OIG report found that as of 2017, approximately 32 percent of Medicare payments made to home health agencies were improper. That error rate is more than three times higher than the overall national improper payment rate. More surprisingly, OIG estimated that from 2014 through 2017, 78 percent of the payments made to high-risk home health agencies were improper. During that same time period, more than $4 billion was paid to high-risk home agencies. The government’s incentive to investigate home health agencies is clear: for high-risk home health agencies alone, it is looking at a potential $3.12 billion recovery.

We thus expect that home health agencies will remain under a microscope. In the coming year, documentation will be key. Home health agencies should consider auditing their documentation policies to ensure they are meeting the number of requirements necessary to qualify for coverage.


We plan to keep on top of these and other trends in the year ahead, with coverage of key trials, including that of Theranos founder Elizabeth Holmes, notable decisions, and important statutory and regulatory developments.

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