A False Claims Act (FCA) lawsuit involving alleged kickbacks for placing drugs on formularies has been settled for $12.5 million. The case is instructive because it shows the FCA can apply even when the government has not lost money from the alleged violations.

The whistleblower filed a lawsuit in 2014 alleging Roche Diabetes and Roche Diagnostics paid Humana and Humana Pharmacies kickbacks for putting Roche’s diabetes testing products on their Medicare Advantage formularies. The lawsuit claimed the plaintiff, an employee of Roche Diagnostics, was fired when he objected to the fraud.

Sanford Heisler Sharp, the New York City law firm representing the plaintiff, announced the settlement. The whistleblower will receive a 29% share of the settlement, totaling $3.6 million.

The plaintiff claimed the defendants violated the Anti-Kickback Statute and FCA, submitting false claims to the Medicare Advantage program and defrauding taxpayers.

According to the whistleblower, Humana and Roche established a kickback relationship in which debt forgiveness was traded for access to government-funded Medicare business. “Specifically, Relator alleged that Roche forgave millions of dollars owed by Humana in exchange for Humana purchasing Roche diabetes testing supplies and favoring Roche diabetes testing supplies over competitors’ products in Humana’s Medicare Advantage plans,” the law firm explained in the settlement announcement. (More information is available at: https://sanfordheisler.com/press-release/humana-and-roche-settle-false-claims-act-lawsuit-for-12-5-million/.)

The plaintiff alleged the plan worked this way: Roche Diagnostics first overpaid Humana $45 million in drug rebates. When that overpayment was discovered, Roche Diagnostics offered to accept a refund of only $27.5 million, with Humana keeping the rest. But Humana negotiated to keep more and eventually retained $34 million of the $45 million overpayment. Humana used access to its formulary as leverage, according to the lawsuit.

The case illustrates how the government does not have to lose money for the FCA to apply, says Inayat Ali Hemani, JD, partner with Sanford Heisler Sharp.

“In addition to establishing liability for false claims submitted to the government, the False Claims Act creates liability for false claims submitted to entities that receive government funds even if the claims do not result in the government paying an increased amount,” he explains. “Medicare Advantage organizations and entities accused of fraud in the Medicare Advantage system have routinely argued that their conduct does not harm the government because the government pays Medicare Advantage organizations a fixed capitated rate for insuring individuals.”

This settlement demonstrates Medicare Advantage organizations, pharmaceutical manufacturers, and other entities can be pursued for engaging in fraud in the Medicare Advantage system, and the capitated payment system does not provide a get-out-of-jail-free card, Hemani says. As the Medicare Advantage program continues to grow, rooting out fraud in the program remains a priority for the government, and Hemani expects to see more cases brought in this area.

“The relator in this case alleged that Roche paid a kickback to Humana by agreeing to partially forgive Humana’s obligation to repay Roche money,” he says. “The case sends a signal that where healthcare entities are discussing the repayment of amounts owed, they run a risk under the Anti-Kickback Statute and False Claims Act if they agree to a reduction in the amount owed in exchange for referrals of government-funded healthcare business.”