A whistleblower case that has been in the courts for 15 years, filed by a former employee against Healthways, Inc., has been settled for approximately $40,000,000. The case was filed in June 1994, by Scott Pogue, who had been fired from his job as a marketing representative for a company called Diabetes Treatment Centers of America (DTCA). The case was filed in Nashville under the False Claims Act against his former employer.
On March 13, 2009, the Board of Directors of Healthways, Inc., DTCA’s parent corporation, approved a settlement under which the United States will receive $28,000,000 in damages. Mr. Pogue’s lawyers’ fees and litigation expenses, totaling about $12 million, will be paid by Healthways, Inc.
My friend Scott Powell, a partner in the Birmingham law firm of Hare, Wynn, Newell & Newton, was one of the lawyers representing Mr. Pogue. Scott had this to say about what was accomplished:
The law established and developed by the Pogue case has enabled the Department of Justice to recoup several hundred million dollars in taxpayer money wrongfully and fraudulently taken through Medicare fraud and illegal kickbacks.
This case was filed pursuant to the False Claims Act. Under the Act, a whistleblower, formally known as a “relator,” is empowered to file a case seeking to recover damages suffered by the United States as a result of a knowing violation of contract or other requirements by a government contractor. Qui tam relators are rewarded for their service with a percentage of the funds recovered by the United States in settlement or judgment.
False Claims Act cases are filed under seal and investigated by the Justice Department, which must elect whether to intervene in the case and take over primary responsibility or decline to intervene, in which case the whistleblower is empowered to litigate the case on the Government’s behalf. It’s significant that the Justice Department declined intervention in Mr. Pogue’s case in early 1995. But his lawyers – without the Justice Department’s direct involvement – carried it forward for 15 long years. Initially filed in Nashville, the case was moved to Washington, D.C., in late 1999 as part of multi-district litigation proceedings against Columbia HCA, which was DTCA’s largest customer.
Initially, Jennifer Verkamp and Frederick Morgan who are with a Cincinnati law firm, Morgan Verkamp, represented Mr. Pogue. When the case was transferred to multi-district proceedings in 2002, Scott and Don McKenna, who is also with the Hare, Wynn, Newell & Newton firm, joined the litigation team.
DTCA violated the Anti-Kickback Statute by paying kickbacks to more than 200 doctors in exchange for referring their patients to DTCA’s hospital customers around the country. DTCA paid these kickbacks under the guise of payments to the doctors as “medical directors” of diabetes care centers based at those same hospitals. DTCA’s primary source of revenue was the “management fees” paid by the hospitals based on DTCA’s promise to increase the number of patients referred to the hospital, which DTCA accomplished by paying numerous “medical directors” to bring their patients to the facilities.
Violations of the Anti-Kickback Statute can be the basis for a civil lawsuit under the False Claims Act. Extensive discovery against DTCA and its parent company by the Pogue legal team led to a waiver of the attorney-client privilege by the founder and CEO of the company during deposition testimony. The resulting discovery of all correspondence between DTCA and its lawyers revealed that the company’s lawyers were greatly concerned that the company’s payments to doctors violated the Anti-Kickback Statute. It also showed that DTCA elected to take the risks anyway.
After 15 years of litigation during which DTCA refused to acknowledge any liability, U.S. District Judge Royce Lamberth denied DTCA’s motion for summary judgment on July 21, 2008, clearing the way for a jury trial in Nashville. The judge conducted an extensive review of the evidence, concluding in his order:
In sum, the Court finds that relator has produced a wealth of evidence supporting his claim that Defendant compensated physicians for their referrals to DTCA centers, and a reasonable jury could decide the issue in relator’s favor.
Settlement negotiations followed that decision and finally a very good settlement was reached – the result of a fifteen-year effort by Mr. Pogue and his lawyers – between the parties. It was a classic example of persistence and good lawyering by the litigation team.
Statistics maintained by the Justice Department show that the total of all recoveries in qui tam cases where the Department decided not to intervene in the case have exceeded the $28,000,000 mark in only three prior years. The Pogue settlement is one of the highest recoveries in such a case in the history of the False Claims Act.
Source: The Montgomery Independent
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