2022 Significant Settlements

Vanessa K. Fulton*

I. Introduction

This chapter summarizes a selection of significant settlements (including non-litigated resolutions such as criminal plea bargains or agency consent orders) in 2022 between members of the food and drug industry and government agencies, such as the U.S. Food and Drug Administration (FDA) and the U.S. Department of Justice (DOJ). The enforcement authority of FDA and DOJ includes both civil penalties and criminal prosecution.

Consistent with last year’s significant settlements chapter, a majority of these settlements arise from enforcement action brought by DOJ under the False Claims Act (FCA), which imposes liability on persons and companies who defraud governmental programs and contracts. However, this year, we also include several non-litigated resolutions (typically consent decrees) of enforcement actions brought by DOJ and FDA involving violations of the Federal Food, Drug, and Cosmetic Act (FDCA). These non-litigated resolutions primarily focus on issues related to manufacturing conditions, including failure to follow good manufacturing practice regulations.

Settlements under the FCA between DOJ and members of the food and drug industry focused on enforcement against entities that engaged in fraud related to healthcare services provided to patients.^[1] This included, for example, fraud involving the payment of kickbacks to referring physicians, whether in cash or in kind, and the provision of medically unnecessary services improperly billed to federal healthcare programs.

Of note, as anticipated in last year’s significant settlements chapter, in 2022 we saw the first two significant settlements involving healthcare-related FCA allegations arising out of COVID-19 relief programs. The first settlement resolved government allegations that Physician Partners of America LLC, a practice management company and its related health care entities, ordered unnecessary testing and billed for unnecessary appointments to increase revenue during the COVID-19 pandemic. The government also alleged that, while engaging in this illegal activity, the practice management company obtained a loan under the federal loan program created under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), and as a result falsely certified in its loan application that it was not engaged in illegal activity. The second settlement related to COVID-19 involved allegations that MorseLife Health System Inc., a corporation that oversees health care facilities including nursing homes and assisted living facilities, facilitated vaccinations for hundreds of individuals ineligible to receive vaccinations at a time when COVID-19 vaccines were in limited supply and intended only for long-term care facility residents and staff.

II. Federal Food, Drug, and Cosmetic Act

Below is a review of several settlements (non-litigated resolutions) between the government and the food and drug industry involving alleged violations of the FDCA.

A. Food

1. Abbott Laboratories^[2]

Abbott Laboratories (Abbott) agreed to be bound by a proposed consent decree to resolve allegations that it violated the FDCA and good manufacturing practice (GMP) requirements by manufacturing powdered infant formula under conditions and using practices that failed to comply with regulations designed to ensure the quality and safety of infant formula, which led to the presence of Cronobacter sakazakii bacteria in environmental samples taken from Abbott’s manufacturing facility.

Under the proposed consent decree, Abbott agreed to bring its manufacturing facility into compliance with the FDCA and GMP requirements and retain outside experts to assist Abbott in developing compliance plans to reduce and control the risk of bacterial contamination and periodically evaluate Abbott’s facility for compliance with FDCA regulations and the consent decree.

B. Drugs

1. Dr. Lindsey Clark^[3]

California doctor Lindsey Clark and her medical practice pled guilty to violating the FDCA by receiving and delivering misbranded drugs and misbranded adulterated devices. Clark specialized in procedures that use injectable drugs and devices for cosmetic purposes, such as Botox (injectable botulinum toxin) and hyaluronic acid fillers such as Juvederm.

The government alleged that Clark obtained injectable botulinum toxin and hyaluronic acid fillers that were not the subject of FDA licenses or approvals from sellers outside the United States and then used these unapproved drugs and devices on patients, representing that these products were FDA-approved products such as Botox and Juvederm. The government alleged that Clark purchased these products for $270,951 and received more than $1,069,880 in revenue from services rendered in connection with these products.

2. Morton Grove Pharmaceuticals^[4]

Morton Grove Pharmaceuticals, a manufacturer of over-the-counter (OTC) drugs such as cough syrups and nasal sprays, agreed to be bound by a consent decree to settle allegations that it violated the FDCA by manufacturing and distributing adulterated drugs. Specifically, the government alleged that Morton Grove Pharmaceuticals failed to have adequate procedures in place to prevent cross contamination of equipment, failed to reject drug lots using a contaminated ingredient, and failed to fully investigate the root cause of such contamination. The government also alleged that many of the violations were repeat violations that FDA had previously identified during five different inspections of the manufacturer’s facility.

Under the consent decree, Morton Grove Pharmaceuticals is enjoined from violating the FDCA and is required, among other things, to cease manufacturing, processing, labeling, holding, or distributing adulterated drugs and destroy all drugs in the facility other than those that are medically necessary.

3. Edge Pharm Inc.^[5]

Compounding pharmacy Edge Pharm Inc. agreed to be bound by a consent decree settling allegations that it violated the FDCA by manufacturing and distributing drugs under unsanitary conditions and failing to follow good manufacturing practice requirements. The government alleged that Edge Pharm manufactured injectable drugs intended to be sterile under non-sterile conditions and that FDA had previously inspected the Edge Pharm facility and identified several violations of the FDCA, including record-keeping violations, labeling inadequacies, improper airflow, structural disrepair, and mold in cleanroom suites.

Under the consent decree, Edge Pharm agreed to cease manufacturing and distributing drugs until it takes specific remedial measures to demonstrate compliance with federal law.

II. False Claims Act and Anti-Kickback Statute

Below is a review of some of the key FCA settlements between the food and drug industry and the government in 2022.

A. Drugs

1. Mallinckrodt ARD LLC^[6]

Mallinckrodt ARD LLC agreed to pay $260 million to resolve allegations that it violated the False Claims Act by knowingly underpaying Medicaid rebates due for its drug and violated the Anti-Kickback Statute by using a foundation as a conduit to pay illegal co-pay subsidies.

Regarding the alleged violations of the False Claims Act, the government alleged that Mallinckrodt knowingly underpaid rebates for its drug, Acthar, from 2013 to 2020, by paying rebates for Acthar as if Acthar was a “new drug” first marketed in 2013, rather than a drug that had been approved since 1952. Treating Acthar as a “new drug” first marketed in 2013 significantly lowered Medicaid rebate payments for Acthar. As part of the settlement agreement, Mallinckrodt admitted that Acthar was not a new drug as of 2013 but rather was approved by FDA and marketed prior to 1990.

Regarding the alleged violations of the Anti-Kickback Statute, the government alleged that Mallinckrodt knowingly used a foundation to pay illegal kickbacks in the form of copay subsidies for Acthar so it could market the drug as “free” to doctors and patients while at the same time increasing its price.

Under the settlement, Mallinckrodt agreed to pay approximately $234.7 million to resolve the Medicaid rebate allegations and approximately $26.3 million to resolve the kickback allegations. Also as part of the settlement, Mallinckrodt entered a five-year corporate integrity agreement (CIA) with the Department of Health and Human Services Office of Inspector General (HHS-OIG) that requires Mallinckrordt to, among other things: 1) comply with unique drug price transparency provisions and monitoring provisions focused on Medicaid rebate and patient assistance program activities; 2) establish a risk assessment program, 3) implement executive recoupment provisions, and 4) obtain compliance-related certifications from company executives and board members.

2.Biogen Inc.^[7]

Biogen Inc. agreed to pay approximately $900 million to resolve a lawsuit filed under the qui tam provisions of the False Claims Act by a former Biogen employee that alleged that Biogen violated the False Claims Act by causing submission of false claims to Medicare and Medicaid by paying kickbacks to physicians to induce them to prescribe Biogen’s multiple sclerosis drugs Avonex, Tysabria, and Tecfidera.

Specifically, the government alleged that Biogen offered health care professionals that attended Biogen’s speaker programs renumeration in the form of speaker honoraria, speaker training fees, and consulting fees and meals in an effort to induce them to prescribe Biogen’s multiple sclerosis drugs.

Biogen agreed to pay approximately $843.8 million to the United States and $56.2 million to the states. The former employee that brought the qui tam action against Biogen will receive approximately 29.6% of the federal proceeds from the settlement.

B. Medical Devices

1. Eargo Inc.^[8]

Eargo Inc., a company that sells and dispenses hearing aid devices directly to customers, agreed to pay $34.37 million to resolve allegations that it violated the False Claims Act by submitting or causing to be submitted claims for reimbursement for hearing aid devices to the Federal Employees Health Benefits Program (FEHBP) that contained unsupported hearing loss diagnosis codes.

The government alleged that Eargo included unsupported hearing loss-related diagnosis codes on claims for reimbursement for its hearing aid devices that Eargo submitted to the FEHBP and on invoices that Eargo provided to FEHBP beneficiaries to obtain reimbursement for its hearing aid devices from the FEHBP. Further, the government alleged that Eargo continued to include these unsupported hearing loss-related diagnosis codes on claims and superbills even after completing an internal review of its billing and coding practices.

2.Philips RS North America, LLC^[9]

Medical device manufacturer Philips RS North America, LLC, formerly Respironics, Inc., agreed to pay $24.75 million to resolve False Claims Act allegations that the company caused suppliers of medical equipment to submit false claims to Medicare and Medicaid by providing illegal inducements. Specifically, the government alleged that Respironics gave the suppliers physician prescribing data free of charge (to assist the suppliers in marketing to physicians) to induce the suppliers to purchase Respironics’ ventilators, oxygen concentrators, CPAP and BiPAP machines, and other respiratory-related medical equipment. The government alleged that the suppliers would then submit claims for the medical equipment it purchased from Respironics to Medicare and Medicaid.

In addition to the civil settlement, Respironics entered into a five-year CIA with HHS-OIG that requires Respironics to implement and maintain a compliance program that includes review of referral sources and monitoring Respironics’ sales force. The CIA also requires that Respironics retain an independent monitor to assess the new compliance program.

The settlement also resolved claims brought under the qui tam provisions of the False Claims Act by a former employee. As part of the settlement, the former employee will receive $4.3 million of the settlement amount.

C. Healthcare Services

1.Gold Coast Health Plan^[10]

Gold Coast Health Plan, a health system in California, and three of its providers agreed to pay a total of $70.7 million through three separate settlements to resolve claims that they violated the False Claims Act and the California False Claims Act by submitting or causing to be submitted false claims to California’s Medicaid program under the Medicaid Adult Expansion under the Patient Protection and Affordable Care Act.

Specifically, the United States and California alleged that Gold Coast Health Plan and its providers submitted claims for payments that were not for “allowed medical expenses,” were for amounts that did not reflect fair market value, and were duplicative and unnecessary services.

Under the three settlements, Gold Coast Health Plan will pay $17.2 million to the United States, and the providers will pay $51.05 million to the United States and $2.45 million to the State of California. Gold Coast Health Plan and one of the providers also agreed to enter into five-year CIAs that require implementation of a centralized risk assessment program as part of a compliance program and to hire an independent review organization to complete annual reviews.

The settlement also resolved claims brought under the qui tam provisions of the False Claims Act by two former employees.

2. Providence Health & Services Washington^[11]

The largest health care fraud settlement in the Eastern District of Washington, Providence Health & Services Washington (Providence), a health care and hospital system, agreed to pay $22.7 million to resolve allegations that it billed federal health care programs for deficient and medically unnecessary neurosurgeries.

Specifically, the government alleged that Providence paid neurosurgeons based on a productivity metric that resulted in a significant financial incentive to perform more surgical procedures of greater complexity. The government alleged that, in response to this productivity metric, two neurosurgeons at Providence conducted medically unnecessary neurosurgery procedures.

As part of the settlement, Providence admitted that medical personnel at Providence expressed concern that the two neurosurgeons were, among other things, endangering patient safety, creating an excessive level of complications and negative outcomes through their unnecessary surgeries, performing surgery on candidates who were not appropriate for surgery, submitting medical documentation with falsified and exaggerated diagnoses, performing more complex surgeries than were medically appropriate, and failing to properly document their procedures and outcomes.

Providence also agreed to enter into a CIA that requires, among other things, that Providence implement and maintain a number of quality-of-care and patient safety obligations and retain outside experts annually to review claims and clinical quality systems.

3.Physician Partners of America LLC^[12]

Physician Partners of America LLC (PPOA), a practice management company, several health care entities managed by PPOA, and PPOA’s former chief medical officer agreed to pay $24.5 million to resolve allegations that they billed federal health care programs for unnecessary urine, psychological, and genetic testing and scheduled unnecessary telehealth appointments for the sole purpose of increasing revenue during the COVID-19 pandemic.

The government alleged that PPOA instructed its physician-employees to order multiple urine tests without confirming that the tests were necessary and to order psychological and genetic testing before confirming whether the physicians actually intended to use the results of the testing. The government also alleged that, at the start of the COVID-19 pandemic, PPOA directed its employees to schedule unnecessary telehealth appointments with its patients every fourteen days, instead of every month as had been PPOA’s practice before the COVID-19 pandemic, to compensate for lost revenue. The government alleged that PPOA instructed its employees to bill the additional telehealth visits using inaccurate procedure codes.

The government also alleged that, at the time PPOA was engaged in this conduct, it obtained a loan under the Paycheck Protection Program (PPP), a federal loan program created under the CARES Act, and as a result falsely certified in its PPP loan application that it was not engaged in illegal activity.

The settlement also resolved claims brought under the qui tam provisions of the False Claims Act by several former employees.

4. Metric Lab Services, LLC^[13]

Three clinical laboratories and two owners and operators agreed to pay $5.7 million to resolve allegations that the laboratories and the owners submitted false claims to federal health care programs by using third-party marketers to encouraging physicians to fraudulently submit genetic testing as medically necessary.

Specifically, the government alleged that the laboratories used third-party marketers to solicit genetic testing samples from Medicare beneficiaries. The government alleged that the third-party marketers would encourage physicians to submit genetic testing for Medicare beneficiaries through one of the three laboratories, despite the fact that the genetic testing was medically unnecessary. The laboratories would then process the tests, receive reimbursements from Medicare, and pay a portion of the reimbursement to the third-party marketers. The government further alleged that the laboratories attempted to conceal the fraudulent activity by entering into sham agreements with the marketers to provide various consulting and marketing services at an hourly rate, when in reality the laboratories paid the marketers a percentage of revenue in return for soliciting unnecessary genetic testing. For example, the government alleged that the marketers would submit “invoices” to the laboratories for hourly services, but the amounts on the invoice matched the agreed-upon amount that the marketers would receive in exchange for each genetic test.

5. MorseLife Health System Inc.^[14]

MorseLife Health System Inc. (MorseLife), a corporation that oversees health care facilities including a nursing home and an assisted living facility, agreed to pay $1.75 million to resolve allegations that it violated the False Claims Act by distributing COVID-19 vaccinations to over 500 ineligible individuals.

Specifically, the government alleged that MorseLife facilitated COVID-19 vaccinations for hundreds of individuals ineligible to receive vaccines under the Centers for Disease Control and Prevention’s Pharmacy Partnership for Long-Term Care Program, a program to vaccinate long-term care facility residents and staff when doses of the COVID-19 vaccine were in limited supply. The government alleged that MorseLife facilitated vaccination for hundreds of ineligible persons (including board members, donors, and friends of board members and donors) by characterizing them as “staff” and “volunteers.”

III.   Conclusion

These settlements illustrate the government’s commitment to combatting fraud in the food and drug space, including health care services. In 2022 we saw the first two significant settlements involving the COVID-19 Fraud Enforcement Task Force and anticipate that the government will continue to prioritize health care fraud related to COVID-19. We also expect that the government will continue to focus on enforcement actions against manufacturers of food and drug products that violate the FDCA, including violations of GMP requirements.

 

* Vanessa K. Fulton is an associate at Kleinfeld, Kaplan & Becker LLP. She advises and represents pharmaceutical, food, dietary supplement, cosmetic, tobacco product, and medical device companies on regulatory and advertising law matters.

[1]   In 2022, roughly 77% of the federal government’s recoveries under FCA judgments and settlements came from health care and life sciences companies, totaling approximately $1.7 billion. False Claims Act Settlements and Judgments Exceed $2 Billion in Fiscal Year 2022, U.S. Dep’t of Just. (Feb. 7, 2023), https://www.justice.gov/opa/pr/false-claims-act-settlements-and-judgments-exceed-2-billion-fiscal-year-2022.

[2]   Justice Department Files Complaint and Proposed Consent Decree to Ensure Safety of Abbott Laboratories’ Infant Formula, U.S. Dep’t of Just. (May 16, 2022), https://www.justice.gov/opa/pr/justice-department-files-complaint-and-proposed-consent-decree-ensure-safety-abbott.

[3]   Doctor Pleads Guilty to Using Misbranded and Adulterated Products Sold as Botox and Juvederm, U.S. Dep’t of Just. (Nov. 28, 2022), https://www.justice.gov/opa/pr/doctor-pleads-guilty-using-misbranded-and-adulterated-products-sold-botox-and-juvederm.

[4]   District Court Enjoins Illinois Pharmaceutical Manufacturer from Making and Selling Adulterated Drugs, U.S. Dep’t of Just. (Aug. 19, 2022), https://www.justice.gov/opa/pr/district-court-enjoins-illinois-pharmaceutical-manufacturer-making-and-selling-adulterated.

[5]   District Court Enjoins Vermont Pharmacy from Distributing Drugs Not Made in Compliance with FDCA, U.S. Dep’t of Just. (June 13, 2022), https://www.justice.gov/opa/pr/district-court-enjoins-vermont-pharmacy-distributing-drugs-not-made-compliance-fdca.

[6]   Mallinckrodt Agrees to Pay $260 Million to Settle Lawsuits Alleging Underpayments of Medicaid Drug Rebates and Payment of Illegal Kickbacks, U.S. Dep’t of Just. (Mar. 7, 2022), https://www.justice.gov/opa/pr/mallinckrodt-agrees-pay-260-million-settle-lawsuits-alleging-underpayments-medicaid-drug.

[7]   Biogen Inc. Agrees to Pay $900 Million to Settle Allegations Related to Improper Physician Payments, U.S. Dep’t of Just. (Sept. 26, 2022), https://www.justice.gov/opa/pr/biogen-inc-agrees-pay-900-million-settle-allegations-related-improper-physician-payments.

[8]   Hearing Aid Company Eargo Inc. Agrees to Pay $34.37 Million to Settle Common Law and False Claims Act Allegations for Unsupported Diagnosis Codes, U.S. Dep’t of Just. (Apr. 29, 2022), https://www.justice.gov/opa/pr/hearing-aid-company-eargo-inc-agrees-pay-3437-million-settle-common-law-and-false-claims-act.

[9]   Philips Subsidiary to Pay Over $24 Million for Alleged False Claims Caused by Respironics for Respiratory-Related Medical Equipment, U.S. Dep’t of Just. (Sept. 1, 2022), https://www.justice.gov/opa/pr/philips-subsidiary-pay-over-24-million-alleged-false-claims-caused-respironics-respiratory.

[10]  California County Organized Health System and Three Health Care Providers Agree to Pay $70.7 Million for Alleged False Claims to California’s Medicaid Program, U.S. Dep’t of Just. (Aug. 18, 2022), https://www.justice.gov/opa/pr/california-county-organized-health-system-and-three-health-care-providers-agree-pay-707.

[11]  Providence Health & Services Agrees to Pay $22.7 Million to Resolve Liability From Medically Unnecessary Neurosurgery Procedures at Providence St. Mary’s Medical Center, U.S. Atty’s Office, E.D. Wash. (Apr. 12, 2022), https://www.justice.gov/usao-edwa/pr/providence-health-services-agrees-pay-227-million-resolve-liability-medically.

[12]  Physician Partners of America to Pay $24.5 Million to Settle Allegations of Unnecessary Testing, Improper Remuneration to Physicians and a False Statement in Connection with COVID-19 Relief Funds, U.S. Dep’t of Just. (Apr. 12, 2022), https://www.justice.gov/opa/pr/physician-partners-america-pay-245-million-settle-allegations-unnecessary-testing-improper.

[13]  Metric Lab Services, Metric Management Services LLC, Spectrum Diagnostic Labs LLC, and Owners Agree to Pay $5.7 Million to Settle Allegations of False Claims for Unnecessary Genetic Testing, U.S. Dep’t of Just. (July 22, 2022), https://www.justice.gov/opa/pr/metric-lab-services-metric-management-services-llc-spectrum-diagnostic-labs-llc-and-owners.

[14]  MorseLife Nursing Home Health System Agrees to Pay $1.75 Million to Settle False Claims Act Allegations for Facilitating COVID-19 Vaccinations of Ineligible Donors and Prospective Donors, U.S. Dep’t of Just. (June 30, 2022), https://www.justice.gov/opa/pr/morselife-nursing-home-health-system-agrees-pay-175-million-settle-false-claims-act.