Top Ten State Healthcare and Financial Fraud Recoveries of 2019

Here at Constantine Cannon, our attorneys represent whistleblowers reporting a wide variety of healthcare fraud and financial fraud, including government contract fraud, unlawful kickbacks, tax evasion, and more. While such wrongful conduct often violates federal laws, state governments are also important enforcement authorities.

For whistleblowers, state enforcement can offer additional opportunities.  New York, for example, offers a number of options for whistleblowers.  But, as our Top Ten list below illustrates, New York is not at all alone in state enforcement efforts.  With state and local government spending reaching $3 trillion annually, whistleblowers can play a critical role in preventing waste, fraud and abuse of state funds, and help state governments hold businesses and individuals accountable for taxpayer dollars and wrongful conduct. Currently, 29 states, D.C., Puerto Rico, and the Virgin Islands have False Claims Acts on the books; in addition, California and Illinois have statutes permitting qui tam suits for fraud affecting private insurance companies.

State enforcement often goes hand-in-hand with federal enforcement.  In addition, multiple states may bring coordinated actions against a defendant.  Many of the recoveries on our Top Ten list below include recoveries at both the state and federal levels, or involve related actions in different venues.  For whistleblowers in healthcare, government procurement, and other fields, it can be important to retain counsel experienced in working with state governments and on cases where different levels of government enforcement must be coordinated.

Recognizing the growing importance of state enforcement, we introduced our first Top Ten list for state recoveries in 2018.  Returning this year, our 2019 list of the top ten state healthcare and financial fraud recoveries is below.

1. 1. Drug Pricing Settlements – Illinois – $377 million. In 2005, Illinois filed suit against 47 pharmaceutical manufacturers, alleging that their published “Average Wholesale Prices,” which were used by Illinois’s Medicaid program to determine reimbursement rates, were fraudulently inflated, causing Illinois to overpay for drugs. In January 2019, Illinois reached a $135 million settlement with Teva Pharmaceuticals, and in October, the state reached a $242 million settlement with more than a dozen different drug makers, including Abbot Laboratories, Aventis, GlaxoSmithLine, Johnson & Johnson, McNeil, Novartis, and more. The October settlement resolved the 2005 litigation; all told, Illinois recovered $678 million as a result of the defendants overcharging the state’s Medicaid program.
   2. Purdue Pharma and Teva Pharmaceuticals – Oklahoma – $355 million. Oklahoma led other states in pursuing litigation against pharmaceutical manufacturers for their role in the opioid crisis, claiming that the drug companies downplayed the dangers and oversold the benefits of opioids, targeting doctors in the state with misleading advertising.  In March, the state entered into a $270 million settlement with Purdue, and in May the state reached an $85 million settlement with Teva, giving Teva placement in the two top slots.  In August, the state secured a $572 million judgment after trial against Johnson & Johnson; J&J has appealed that verdict.
   3. Xerox/Conduent – Texas – $236 million. Texas employed Xerox (and its subsidiary Conduent, Inc.) to administer claims to its Medicaid program for orthodontic services, reviewing and approving or denying claims by Medicaid providers for reimbursement.  To resolve claims that they improperly approved claims for payment without ensuring that the claims met Medicaid requirements, Xerox agreed to pay Texas $236 million.  According to the state, the settlement was the largest single recovery in a case filed under the Texas Medicaid Fraud Prevention Act.
   4. Fiat Chrysler – Multistate – $150 million. Also appearing on our Top Ten Environmental Recoveries of 2019, Fiat Chrysler agreed to pay a total of $500 million to settle federal and state claims that it installed “defeat devices” in diesel automobiles to circumvent emissions testing requirements.  California led state enforcement efforts and will receive $78.4 million of the settlement; the remaining 49 states, D.C, Puerto Rico, and Guam, will receive payments totaling $72.5 million.
   5. Morgan Stanley – California – $150 million. In litigation arising out of the 2007 subprime mortgage crisis, California secured a $150 million settlement from Morgan Stanley, which sold residential mortgage-backed securities to the state’s pension funds while allegedly concealing their risk.  The recovery by California, which included the resolution of claims under the California False Claims Act, also ranks as one of the top non-healthcare False Claims Act recoveries of 2019, illustrating the significant impact that states can have in FCA litigation.  In 2016, Morgan Stanley paid $2.6 billion to resolve subprime mortgage claims by the federal government.
   6. Johnson &Johnson/DePuy Orthopaedics – Multistate – $120 million. Texas lead an investigation that resulted in a $120 million settlement by J&J and its subsidiary, resolving claims by 46 states and D.C. that the companies engaged in deceptive marketing of two specific metal-on-metal hip implants.  Defendants were alleged to have misrepresented the lifespan of the products and failed to support its advertising claims with scientific evidence.  Claims for off-label or other deceptive marketing of medical devices, including fraudulent claims of “FDA approval,” can also serve as the basis for an action under the False Claims Act, to recover funds of government payors.
   7. Johnson & Johnson/Ethicon – Multistate – $117 million. Making a second appearance on this list, in a settlement with 41 states and D.C., J&J and its subsidiary Ethicon agreed to pay $117 million to resolve claims by the states that the companies failed to comply with consumer protection laws and engaged in unlawful marketing of its transvaginal surgical mesh that did not disclose known risks and complications to patients and their doctors.
   8. Lupin Limited – Texas – $63 million. In an action with many similarities to Illinois’s drug pricing settlements above, Texas secured a $63 million settlement with drug maker Lupin Limited and two of its senior executives for allegedly reporting false and inflated drug prices in order to increase their Medicaid reimbursements.  The Texas recovery, which was initiated by the filing of a whistleblower lawsuit, was shared by the state and Federal government, which jointly fund Medicaid.
   9. Correctional Services Fraud – Mississippi – $26.6 million. Five separate companies in the increasingly-lucrative private prison industry settled claims by the State of Mississippi that they paid bribes to commissioner Christopher Epps of the state Department of Corrections in order to secure contracts with the state.  Correctional facilities operators Management and Training Corporation, Cornell Companies, Inc. (now part of GEO Group), correctional healthcare provider Wexford Health Sources, Inc., commissary management company Keefe Commissary Network, LLC, and construction company  N. W. Construction Company paid between $3.1 million and $5.2 million each.  The range of settling defendants illustrates the array of parties involved in correctional services, from construction companies, to facilities operators, to healthcare providers, and more.  Obtaining a government contract through bid-rigging, bribery, or other wrongful means can serve as the basis for a claim under a state or federal False Claims Act.
   10. Abbott Labs – Multistate – $25 million. In a case initiated by North Carolina, drug maker Abbott Labs agreed to pay $25 million to resolve the claims of seven states and the federal government that it engaged in unlawful kickbacks and inappropriate, off-label marketing of its drug TriCor.

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