Whistleblower Case Against Healthways, Inc. Settled For $40,000,000

Main Category: Litigation / Medical Malpractice
Article Date: 01 Jun 2009 - 2:00 PDT

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A 15-year whistleblower case filed by a former employee against Healthways, Inc. has been settled for approximately $40,000,000 in damages and fees. The case was initiated in June 1994, when A. Scott Pogue, who had recently been fired from his job as a marketing representative for a company called Diabetes Treatment Centers of America, filed a case in Nashville under the United States Civil 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 pursuant to which the United States will receive $28,000,000 in damages. Mr. Pogue will receive between 25 and 30 percent of the Government's recovery. Mr. Pogue's attorney's fees and litigation expenses totaling about $12 million also will be paid by Healthways, Inc.

"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," said Scott Powell, co-counsel for Mr. Pogue and partner at Hare, Wynn, Newell & Newton, LLP.

Mr. Pogue's case was brought pursuant to the qui tam (pronounced "kwee tom") provisions of the United States Civil False Claims Act, a law introduced by President Abraham Lincoln in order to combat the delivery of shoddy goods to the Union Army during the Civil War. Under the False Claims Act, a whistleblower, formally known as a "relator," is empowered to file a case seeking to recover damages suffered the United States as a result of the 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 obtained 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.

The Justice Department declined intervention in Mr. Pogue's case in early 1995, and Pogue and his attorneys carried it forward from then until now. Initially filed in Nashville, it 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. Jennifer Verkamp and Frederick Morgan of Cincinnati's Morgan Verkamp LLC have represented Mr. Pogue since before the case was transferred to multi-district proceedings in Washington, D.C., and Scott Powell and Don McKenna of Birmingham's Hare, Wynn, Newell & Newton joined Mr. Pogue's litigation team in 2002.

The central allegation of Mr. Pogue's complaint was that 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.

Many years of hard-fought litigation resulted in 15 published opinions in Mr. Pogue's case, several of which were pivotal in establishing the now widely-accepted principle that violations of the Anti-Kickback State can form the basis for a suit under the False Claims Act. Extensive discovery against DTCA and its parent company led to a waiver of attorney-client privilege by the founder and CEO of the company during deposition testimony and the resulting discovery of all correspondence between DTCA and its lawyers showed that the lawyers were very concerned that DTCA's payments to doctors violated the Anti-Kickback Statute, but that DTCA decided to take the risks associated with its business model.

After fifteen years of hard-fought litigation during which DTCA steadfastly refused to acknowledge the possibility of liability, U.S. District Judge Royce Lamberth on July 21, 2008 denied DTCA's motion for summary judgment, clearing the way for a jury trial in Nashville. Judge Lamberth conducted an extensive review of the evidence, concluding: "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." 565 F. Supp. 2d 153,166 (D.D.C. 2008). Settlement discussions followed that decision.

"This result is the culmination of a fifteen-year effort by Mr. Pogue," said Jennifer Verkamp of Cincinnati, Ohio's Morgan Verkamp LLC. "He knew that DTCA's practice of paying doctors to refer their patients so that DTCA could be paid large management fees was wrong. We hope that Mr. Pogue's courage and tenacity encourages others who are deciding whether to come forward to report fraud. His case broke new ground in the application of the False Claims Act to improper payments among health care providers."

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. Mr. Pogue's settlement likely represents the third-highest recovery in such a case in the history of the False Claims Act. While recoveries in such cases are usually lower than when where the Justice Department brings the full weight and resources of the United States Government to bear against a defendant, Mr. Pogue's case demonstrates the wisdom of Congress in deciding that the government's decision not to participate does not mean that a case has no merit. The Justice Department closely monitored Mr. Pogue's case, filed several briefs in support of his positions, and assisted in settlement negotiations, showing the power of the public-private partnership which the congressional supporters of the False Claims Act have strongly encouraged.

"While recoveries in such cases are usually lower than when where the Justice Department brings the full weight and resources of the United States Government to bear against a defendant, Mr. Pogue's case demonstrates the wisdom of Congress in deciding that the government's decision not to participate does not mean that a case has no merit," said Rick Morgan of Morgan Verkamp.

Scott Pogue works as a sustainable energy program manager for an Air Force contractor.

Morgan Verkamp LLC concentrates on cases under the False Claims Act, and have extensive experience in cases where the government has declined to participate. Mr. Morgan and Ms. Verkamp have represented qui tam relators since 1996 and have participated in cases which have resulted in return of more than $550,000,000 to the United States Treasury.

Hare, Wynn, Newell & Newton, the oldest plaintiff's law firm in the State of Alabama, has brought its knowledge and experience to bear on False Claims Act cases for more than a decade. The firm has recovered more than $465,000,000 IN False Claims Act recoveries including U.S. ex rel. Sanders v. Allison Engine, which was decided in their clients' favor last year by the United States Supreme Court.

Source
Hare, Wynn, Newell & Newton

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