We Don’t Need No Intervention: Qui Tam Relator in Omnicare Wins Big Without DOJ

Posted by Health Law Informer Author on July 23, 2014
DOJ, False Claims Act, Whistleblower

The United States Department of Justice (DOJ) recently announced the settlement of two qui tam whistleblower lawsuits against Omnicare Inc., the largest nursing home pharmaceutical and pharmacy services vendor in the nation. The suits alleged that Omnicare gave significant discounts to skilled nursing facilities in exchange for lucrative referrals and pharmacy provider contracts. This $124.24 million settlement is the largest ever in a “swapping” case brought under the Anti-Kickback Statute.

In addition to its size, this settlement is noteworthy because DOJ had initially declined to intervene in the underlying suits and relators pursued the claims independently. That go-it-alone decision was so resoundingly vindicated in Omnicare, it is likely that this case will encourage other whistleblowers to follow a similar course of action. Relators have long had the right to continue False Claims Act litigation without governmental participation. DOJ’s decision whether to intervene or not was traditionally (although not explicitly stated) viewed as a reflection of the strength of the whistleblower’s allegations.  With the increase in whistleblower complaints, the limitations on the number of cases that DOJ can put resources on, statutory changes, the rise of a specialized qui tam bar, and big dollar victories like this may significantly increase the number of independent qui tam lawsuits.

The allegations in Omnicare first emerged in a 2010 complaint filed by Donald Gale, a former manager and vice president of operations. Nursing homes are paid a per-diem rate to care for Part A beneficiaries, no matter the actual cost of drugs and services during a resident’s first 100 days in a nursing home. Any reduction in costs, therefore, is profit for the facility. According to the complaint, Omnicare allegedly designed contracts with nursing homes to exploit this payment structure under Medicare in violation of Anti-Kickback and False Claims laws. For example, Omnicare regularly traded initial steep discounts (sometimes even below-cost prices) on prescription drugs for Medicare Part A residents in exchange for contracts or referrals to serve residents who had prescription drug coverage under Medicare Part D. Thus, Omnicare allegedly engaged in “swapping,” the practice of paying remuneration with the intended purpose of inducing referrals.

Before the Gale lawsuit was slated to go to trial, in October 2013, Omnicare announced that the parties had reached a preliminary settlement for $120 million. Exercising its right to approve settlements made on its behalf under the False Claims Act, DOJ jumped into the negotiations, and thereafter, the total settlement amount increased to $124.24 million. Of that total, state Medicaid programs receive $8.24 million and Gale receives $17.24 million.

This is not the first big settlement that the government has recovered from Omnicare. It is actually one of a series of settlements against Omnicare involving kickback allegations.

Practice Tip: Nursing home compliance plans should include a mechanism to initially and periodically review contractual arrangements between nursing homes and their vendors, including pharmacy service vendors, to assure continued compliance with state and federal fraud and abuse laws.

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