March 15 , 2001

False Claims Act Recoveries Reach Record Level in 2000

In November 2000, DOJ reported that the United States collected a record $1.5 billion in civil fraud recoveries during the 2000 fiscal year—an increase of almost 50% above the largest previous annual recovery in 1997.

Approximately $1.2 billion of the settlements and judgments were the result of qui tam lawsuits. Payments to whistleblowers for the 2000 fiscal year totaled more than $173 million.

Health care fraud cases once again topped the list of annual recoveries, totaling more than $840 million. This amount included what was the largest civil fraud recovery ever (until record-breaking Columbia/HCA settlement in December 2000)—a $385 million settlement with Fresenius Medical Care to resolve four separate qui tam lawsuits alleging various wrongdoing by its kidney dialysis subsidiary. The largest of the four suits, which resulted in $253.3 million of the $385 million total settlement, involved allegations of fraudulent claims related to intradialytic parenteral nutrition (IDPN), a therapy for patients undergoing dialysis. The suit alleged that a Fresenius holding, NMC Homecare, Inc. submitted claims for this nutritional treatment that were based on fraudulent medical data, billed for equipment that was not used, and paid kickbacks to facilities to induce referral of business for IDPN therapy. The relators were former NMC employee Dana R. Austin, and a competitor of NMC, Ven-A-Care of Key West Florida.

The Department also recovered $170 million from Beverly Enterprises, Inc., the largest nursing home operator in the United States, for alleged false billings to Medicare involving over 400 nursing homes around the country. That suit, filed in 1995 by Domenic Todarello, who formerly headed a number of Beverly nursing homes in California and Arizona, alleged that Beverly billed Medicare for labor costs incurred in treating non-Medicare beneficiaries and used phony documents to support its claims for payment.

A health care fraud settlement with Quorum Health Group, Inc., the nation's largest hospital management chain, resolved 2 qui tam lawsuits. The largest of the suits was filed in January 1993 by James Alderson, a former CFO for a Quorum-managed hospital, and alleged that Quorum included non-reimbursable costs in its annual cost reports and kept a secret set of cost report reserves identifying the improper claims in case the scheme was uncovered.

Also in FY 2000, GAMBRO Healthcare, Inc. and two subsidiaries agreed to pay a total of $53.1 million to settle a qui tam lawsuit alleging that the laboratories submitted false claims for services provided to end stage renal disease patients. The suit was filed by relators Jay Buford, William Schoff and Dianne Castano.

After health care, the largest category of fraud recoveries involved the production of oil and other minerals from public lands. The Department recovered more than $243 million from companies alleged to have underpaid royalties on such production, including $95 million from Chevron, $56 million from Shell, $43 million from Texaco, $32 million from BP Amoco, $26 million from Conoco and $11.9 million from Devon Energy. These settlements were all the result of a qui tam lawsuit against 14 oil companies filed in 1996 by J. Benjamin Johnson and John Martinek, former employees of Atlantic Richfield Co.

The Department's recoveries also included over $140 million in settlements with twenty-five brokerage firms. These companies allegedly sold open market securities with artificially low yields to municipalities refunding tax-exempt bonds, thereby reducing the municipalities' purchase of special low-interest Treasury bonds. The most significant "yield burning" settlement came from Solomon Smith Barney, which agreed to pay $38.8 million to resolve these allegations.

Defense procurement fraud accounted for another $100 million in recoveries, including $54 million from the Boeing Corporation to resolve allegations that it placed defective transmission gears in army Chinook helicopters. There is significant evidence that the defective gears caused numerous accidents including a 1988 crash of a Chinook in Honduras in which five American soldiers were killed. The settlement resolved two related qui tam actions filed by Brett Roby, a former Quality Assurance Engineer for Boeing subcontractor SPECO Corp.

Also in fiscal year 2000, Government contractor Jacobs Engineering Group, Inc. agreed to pay $35 million to settle allegations that the company inflated lease payments under its contracts with various government agencies. The settlement resolves a qui tam action filed in 1997 by former Jacobs employee Edwin Bond. Bond was subsequently dismissed from the action, but he has appealed.

Civil recoveries for fiscal year 2001 began on a strong note with the largest FCA recovery ever, a $745 million settlement with HCA-The Health Company (formerly Columbia/HCA); a $30.6 million settlement with LifeScan, Inc., and a $27 million settlement with National Health Care Corp. The LifeScan settlement resolved a qui tam suit filed in 1997 by two former employees, alleging that the company failed to file medical device reports with the FDA advising it of the illnesses and injuries resulting from defective blood glucose monitoring devices. According to DOJ, the reports the company did file contained false, incomplete or misleading information. The relators were Robert Konrad and John Pumphrey.

National Health Care paid $27 million to settle allegations that it submitted inflate costs reports to Medicare. The allegations came to light as a result of a qui tam lawsuit filed by a former nursing home administrator for National Health Care's Orlando facility, Philip Charles Braeuning.