Contents of a federal “whistleblower” lawsuit naming Whitesburg-based Mountain Comprehensive Health Corporation as a defendant were ordered unsealed recently after a federal prosecutor officially declined to intervene in the case.
U.S. Attorney Kerry B. Harvey filed the “notice of election to decline intervention” in U.S. District Court in Pikeville on March 18, some eight months after a Whitesburg pharmacist and his wife filed the lawsuit accusing MCHC of violating the federal False Claims Act through “kickback arrangements” with as many as nine eastern Kentucky pharmacies.
The original 40-page complaint was filed July 9, 2015 by “relators” William Reed Hall and Jennifer Hall and then ordered sealed from public view as is customary in a whistleblower suit. The Halls accuse MCHC of creating an improper “financial windfall” for itself and pharmacies through their participation in the federal 340B Drug Discount Program, which requires drug manufacturers to provide outpatient drugs at a greatly reduced prices to qualifying organizations such as MCHC.
The Halls say MCHC decided which pharmacies it would contract with for the 340B Program based on the amount of money those pharmacies would “kick back” to MCHC after prescriptions were filled and the pharmacies were reimbursed by the government and insurance companies.
The complaint says William Hall, the pharmacist in charge at Superior Drug, which does business inside Food City of Whitesburg, uncovered what he believed to be “illegal fraud” in late 2012 while he was preparing
Superior Drug’s bid to become the “contract pharmacy” for MCHC’s Whitesburg Medical Center.
According to the lawsuit, William Hall notified MCHC officials about his concerns, but heard nothing back from them until he was told his bid had been rejected.
“Based on his concerns, Mr. Hall worked with his wife, Jennifer Hall, who was employed by KYVA Investments [a defendant in the suit but at the time the contract pharmacy for the Whitesburg Medical Clinic] to see if MCHC was incorporating these fraudulent practices into their business with their existing contract pharmacies,” the complaint says. “Additional information obtained by Mr. Hall from Mrs. Hall confirms the fraudulent conduct that occurred and may be continuing to occur at MCHC and within the contract pharmacies.”
The Halls also accuse MCHC of charging the federal government “roughly 2,000 percent more than what MCHC was charging cash patients” for certain medicines.
In his notice of election to decline intervention in the matter between the Halls and MCHC, Harvey, the federal prosecutor, noted that the Halls could continue to pursue their suit against MCHC and the pharmacies personally if they choose. Harvey also requested to reserve his right to intervene in the action at a later date or to seek dismissal of the Halls’ action.
In a statement released to the media this week, MCHC Chief Executive Offi- cer L.M. “Mike” Caudill said he wanted to “assure our patients that we at MCHC work hard to not only provide the very best medical care to our patients, but also to make sure that we are in compliance with all applicable statutes, rules and regulations at all levels of government under which we work.” dded Caudill: “We are confident that at the end of this process it will have been demonstrated that we have conducted ourselves appropriately and in a lawful manner that has legitimately maximized our ability to care for those people who are most important to us, our patients.”
Editor’s Note: The United States Department of Justice provides this memorandum to help the public gain a brief, general overview of “qui tam litigation” under the False Claims Act.
The False Claims Act, 31 U.S.C. § 3729 et seq., provides for liability for triple damages and a penalty from $5,500 to $11,000 per claim for anyone who knowingly submits or causes the submission of a false or fraudulent claim to the United States.
The statute, first passed in 1863, includes an ancient legal device called a “qui tam” provision (from a Latin phrase meaning “he who brings a case on behalf of our lord the King, as well as for himself”). This provision allows a private person, known as a “relator,” to bring a lawsuit on behalf of the United States, where the private person has information that the named defendant has knowingly submitted or caused the submission of false or fraudulent claims to the United States. The relator need not have been personally harmed by the defendant’s conduct.
The False Claims Act has a very detailed process for the filing and pursuit of these claims. The qui tam relator must be represented by an attorney. The qui tam complaint must, by law, be filed under seal, which means that all records relating to the case must be kept on a secret docket by the Clerk of the Court. Copies of the complaint are given only to the United States Department of Justice, including the local United States Attorney, and to the assigned judge of the District Court. The Court may, usually upon motion by the United States Attorney, make the complaint available to other persons.
The complaint, and all other filings in the case, remain under seal for a period of at least sixty days. At the conclusion of the sixty days, the Department of Justice must, if it wants the case to remain under seal, file a motion with the District judge showing “good cause” why the case should remain under seal. In the usual course, these motions request an extension of the seal for six months at a time.
In addition to the complaint filed with the District Court, the relator through his or her counsel must serve upon the Department of Justice a “disclosure statement” containing substantially all the evidence in the possession of the relator about the allegations set forth in the complaint. This disclosure statement is not filed in any court, and is not available to the named defendant.
Under the False Claims Act, the Attorney General (or a Department of Justice attorney) must investigate the allegations of violations of the False Claims Act. The investigation usually involves one or more law enforcement agencies (such as the Office of Inspector General of the victim agency, the Postal Inspection Service, or the FBI.) In some investigations where state agencies are victims, state attorneys general with expertise and interest will participate in the investigation and work closely with the federal agencies.
The investigation will often involve specific investigative techniques, including subpoenas for documents or electronic records, witness interviews, compelled oral testimony from one or more individuals or organizations, and consultations with experts. If there is a parallel criminal investigation, search warrants and other criminal investigation tools may be used to obtain evidence as well.
At the conclusion of the investigation, or earlier if so directed by the Court, the Department of Justice must choose one of three options named in the False Claims Act:
1) intervene in one or more counts of the pending qui tam action. This intervention expresses the Government’s intention to participate as a plaintiff in prosecuting that count of the complaint. Fewer than 25% of filed qui tam actions result in an intervention on any count by the Department of Justice.
2) decline to intervene in one or all counts of the pending qui tam action. If the United States declines to intervene, the relator and his or her attorney may prosecute the action on behalf of the United States, but the United States is not a party to the proceedings apart from its right to any recovery. This option is frequently used by relators and their attorneys.
3) move to dismiss the relator’s complaint, either because there is no case, or the case conflicts with significant statutory or policy interests of the United States.