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Litigation pending against Education Management Corp. (EDMC) will proceed, albeit with three fewer claims than the plaintiff had originally sought. Last Friday, May 31, U.S. District Judge Terrence McVerry ruled that a complete dismissal of all claims was premature, but he did dismiss three of six claims in a lawsuit brought by Jason Sobek, a former recruiter for the company. Sobek filed a lawsuit against EDMC in 2010 accusing the company of making false statements and using “boiler-room” tactics in order to participate in federal financial assistance programs.

Following the recommendation of a magistrate judge, Judge McVerry dismissed claims relating to false statements regarding the cost of education programs, false statements regarding its incentive compensation ban, and reverse False Claims Act allegations. Judge McVerry upheld claims alleging false statements regarding the accreditation of nursing programs, job placement statistics, and academic progress statistics, giving EDMC until June 14 to respond to the complaint.

U.S. officials have intervened in a related case on behalf of two EDMC whistle-blowers who accuse the company of wrongfully securing more than $11 billion in student aid, but the government has decided not to intervene in Sobek’s case.

ISTA Pharmaceuticals, Inc. pled guilty on March 24 to conspiracy to introduce a misbranded drug into interstate commerce and conspiracy to pay illegal remuneration in violation of the Federal Anti-Kickback Statute.  As part of the guilty pleas and settlement agreement, ISTA will pay $33.5 million to resolve criminal and civil liability arising from the marketing, distribution and sale of its drug Xibrom, which was approved by FDA to treat pain and inflammation following cataract surgery.  The guilty pleas resolve allegations that, between 2005 and 2010, some ISTA employees promoted Xibrom for unapproved new uses, including the use of Xibrom following Lasik and glaucoma surgeries, and for the treatment and prevention of cystoid macular edema.

American Commercial Colleges Inc. (ACC) – for-profit school in Texas – has agreed to pay the United States up to $2.5 million, plus interest, to resolve allegations of False Claims Act violations by falsely certifying compliance with certain eligibility requirements of the federal student aid programs. Of the $2.5 million settlement, $1 million is fixed, to be paid with interest over five years, and an additional $1.5 million is contingent payment obligation. The whistleblowers in the case – Shawn Clark and Juan Delgado, former directors of two ACC campuses – will receive $170,000 of the $1 million fixed portion of the government’s recovery. They will receive an additional $255,000 if ACC becomes obligated to pay the maximum $1.5 million contingent portion of the settlement.

Medicaid fraud prevention and enforcement depends a great deal the help of state governments and private whistleblowers – a fact that has been recognized by the federal government. In 2005, when Congress passed the Deficit Reduction Act, it included a provision that entitles any state that adopts a law designed to combat Medicaid fraud to receive 10 percent of resulting Medicaid fraud settlements. Moreover, the Deficit Reduction Act includes a “qui tam” provision that lets whistleblowers who tip off officials to share in the fraud recovery.

In recent years, these provisions have proved to be rather effective, given that in fiscal 2012, the government reported recovering $4.2 billion through Medicaid fraud false claims investigation, most of which were initiated by whistleblowers.

When the Deficit Reduction Act took effect in 2005, 14 states received the bonus. But these states were recently stripped of their bonus when the Department of Health and Human Services determined that the state laws were too weak to qualify for the 10 percent bonus in light of the Fraud Enforcement and Recovery Act of 2009, the Affordable Care Act, and the Dodd-Frank Act – all of which expanded whistleblower protections and increased penalties for violators.

As a result, the 14 states – California, New York, Georgia, Hawaii, Illinois, Indiana, Massachusetts, Michigan, Nevada, Rhode Island, Tennessee, Texas, Wisconsin and Virginia – became ineligible for the incentive upon the end of a grace period. For three states, the grace period ended on March 31, and the grace period for 11 others will end on August 31. Twenty-two states have not passed any state-level false claims law.

Texas – one of the states touted as a shining example of effective state-law fraud laws – is still working to amend its law to comply with the new federal requirements. In the past seven years, Texas has recovered more than $821 million in Medicaid fraud claims, of which $394 million was obtained in fraud cases in which Texas led the investigation and prosecution.

Unfortunately, not all state lawmakers are motivated to create or enhance false claims laws in order to receive the incentive bonus. As this Reuters article explains, drug and medical companies have lobbied many states, arguing that whistleblower provisions encourage meritless lawsuits and create a hostile business environment. At Goldberg Kohn, our whistleblower attorneys support effective state laws designed to prevent and prosecute Medicaid fraud and reward whistleblowers for their crucial role in fighting fraud.

Please contact us at (312) 863-7222 if you would like to learn more about any of the aforementioned whistleblower news updates or would like to schedule a free, confidential appointment with one of our nationally recognized whistleblower attorneys.