2024 Significant Settlements

Vanessa K. Fulton*

Introduction

This chapter summarizes a selection of significant settlements (including non-litigated resolutions such as criminal plea bargains or agency consent orders) in 2024 between members of the food and drug industry and government agencies, such as the U.S. Department of Justice (DOJ), the U.S. Food and Drug Administration (FDA), and the Federal Trade Commission (FTC).

As with prior years Significant Settlements chapters, we have included settlements arising from enforcement actions brought by DOJ under the False Claims Act (FCA) and Anti-Kickback Statute (AKS) and enforcement actions brought by DOJ and FDA involving violations of the Federal Food, Drug, and Cosmetic Act (FDCA). However, this year we have included summaries of two non-litigated resolutions of enforcement actions brought by the FTC alleging violations of the FTC Act and the COVID-19 Consumer Protection Act.

First, we discuss several non-litigated resolutions of enforcement actions brought by DOJ and FDA involving violations of the FDCA. These non-litigated resolutions include a variety of issues, such as issues related to insanitary conditions during manufacturing and distributing food, misbranded seafood products, mislabeled dietary ingredients, falsely touting an opioid medication’s purported abuse deterrence, and failure to comply with good manufacturing practice (GMP) regulations for manufacturing medical devices.

This year we also saw the first settlement between the government and a manufacturer of electronic nicotine delivery systems (ENDS) for manufacturing and selling ENDS without the required marketing authorization from FDA, in violation of the FDCA. Specifically, this reflects the first enforcement action finalized since the DOJ and FDA announced the creation of a federal multi-agency task force to combat the illegal distribution and sale of ENDS.[1]

Second, we summarize two non-litigated resolutions (consent decrees) of enforcement actions brought by FTC involving violations of the FTC Act and the COVID-19 Consumer Protection Act. One of these resolutions involved claims the defendant falsely advertised its dietary supplement as able to treat, prevent, or mitigate COVID-19, while the other involved claims that the defendant falsely claimed its face masks were equivalent to N95 certified respirators.

Finally, we summarize settlements that arise from enforcement action brought by DOJ under the FCA, which imposes liability on persons and companies who defraud governmental programs and contracts, and the AKS, which prohibits the knowing and willful payment of remuneration to induce or reward referrals of items or services that are reimbursable by federal healthcare programs. These non-litigated resolutions include issues related to prescribing and filling opioids, illegal kickbacks in the form of copays for drugs for Medicare patients and through use of management service organizations, unnecessary therapy services, and unnecessary laboratory testing. Two of these non-litigated resolutions involved enforcement actions brought by DOJ under the COVID-19 Fraud Enforcement Task Force.

Federal Food, Drug, and Cosmetic Act

Below is a review of several settlements (non-litigated resolutions) between the government and the food and drug industry involving alleged violations of the FDCA.

A. Food

1. 1. Family Dollar Stores LLC[2]

In the largest ever monetary criminal penalty in a food safety matter, Family Dollar Stores LLC (Family Dollar) pleaded guilty to causing FDA-regulated products to become adulterated while being held under insanitary conditions.

According to the plea agreement, in August 2020 Family Dollar began receiving reports of mouse and pest issues with deliveries to stores from its Arkansas distribution center. Family Dollar admitted that by no later than January 2021, some of its employees were aware that the insanitary conditions caused FDA-regulated products held at the Arkansas distribution center to become adulterated in violation of the FDCA.

Despite this knowledge, according to the plea agreement Family Dollar continued to ship FDA-regulated products from the Arkansas distribution center until January 2022, when FDA inspected the distribution center and discovered live rodents, dead and decaying rodents, rodent feces, urine, and odors, and evidence of gnawing and nesting throughout the facility. According to the plea agreement, subsequent fumigation of the distribution center resulted in the reported extermination of 1,270 rodents.

The plea agreement requires Family Dollar to pay a fine and forfeiture amount of $41.675 million, which is the largest monetary criminal penalty in a food safety case. The plea agreement also requires Family Dollar to meet corporate compliance and reporting requirements for the next three years.

1. 2. Quality Poultry and Seafood Inc.[3]

Quality Poultry and Seafood, Inc. (QPS), the largest seafood wholesaler on the Mississippi Gulf Coast, pleaded guilty to allegations that it engaged in a conspiracy to defraud its customers by marketing mislabeled seafood in violation of the FDCA.

QPS admitted that it engaged in a “fish substitution scheme” from 2002 through 2019 where QPS recommended and sold to its restaurant customer cheaper foreign-soured fish that could be used as convincing substitutes for local species of fish that the restaurants advertised on their menus. As part of the scheme, QPS also labeled and sold the cheaper foreign-sourced fish as premium local fish in its own retail shop and café.

The indictment also alleged that QPS continued its fish substitution scheme for over a year after FDA executed a criminal search warrant at QPS to investigate the sale of its mislabeled fish.

As part of the plea agreement, QPS agreed to pay $1 million in forfeitures and a criminal fine of $150,000.

1. 3. Rizo Lopez Foods Inc.[4]

Rizo Lopez Foods Inc., along with its president, chief executive officer and co-owner, Edwin Rizo, and its chief financial officer, secretary and co-owner, Tomas Rizo, agreed to settle alleged violations of the FDCA and be bound by a consent decree of permanent injunction.

In a civil complaint, the government alleged that the defendants violated the FDCA at the company’s food facility by manufacturing and distributing adulterated food products such as cheeses, yogurt, sour cream, and other foods. Specifically, the complaint alleged that Listeria monocytogenes (L. mono) was detected in cheese made by the defendants and an FDA inspection of the defendants’ facility found L. mono in two locations, as well as various insanitary conditions. An investigation by the Centers for Disease Control identified twenty-six cases of listeriosis in eleven states linked to the same L. mono strain, which resulted in twenty-three hospitalizations and two deaths.

As part of the settlement, the defendants represented that they have discontinued all operations related to preparing and processing food. Additionally, the consent decree of permanent injunction permanently enjoins the defendants from violating the FDCA and requires the defendants to notify FDA in advance of resuming any operations related to preparing and processing food, and requires that the defendants comply with specific remedial measures in the injunction and allow FDA to inspect their facility, including the buildings, sanitation-related systems, equipment, utensils, all articles of food, and relevant records.

B. Dietary Supplements

1. 1. Defyned Brands (5 Star Nutrition, LLC)[5]

Defyned Brands (also known as 5 Star Nutrition LLC), a distributor of dietary supplements, pleaded guilty to charges that it distributed misbranded dietary supplements in violation of the FDCA. Specifically, the government alleged that Defyned Brands distributed workout supplements that contained ingredients mislabeled as dietary ingredients or not listed on the product label. These mislabeled dietary ingredients included 5-alpha-hydroxy-laxogenin and 3b-hydroxy-androstane-17-one, neither of which meet the definition of “dietary ingredient.”

As part of the plea agreement Defyned Brands agreed to forfeit $4.5 million and comply with the terms of a compliance program and certain reporting requirements. Under the compliance program, among other things, Defyned Brands must create and maintain a system of procedures that ensures adequate qualification and oversight of third-party contract manufacturers, processors, packers, distributors, specification designers, and testing laboratories.

C. Drugs

1. 1. KVK Research Inc.[6]

Generic drug manufacturer KVK Research Inc. and its corporate affiliate KVK Tech Inc. pleaded guilty to charges of introducing adulterated drugs into interstate commerce in violation of the FDCA and also agreed to pay $2 million to resolve civil liability under the FCA related to the same conduct.

As part of the plea agreement, both KVK Research and KVK Tech admitted that between January 2011 and October 2013 they introduced into interstate commerce hydroxyzine tablets that were manufactured with an active pharmaceutical ingredient (API) made at a foreign facility without notifying or seeking authorization from FDA to use that facility as a source of API for its hydroxyzine tablets, causing the products to be adulterated under the FDCA. Additionally, the defendants also admitted that between February 2019 and April 2019 they manufactured prescription drugs while failing to exercise appropriate controls over computer and related systems as required by current good manufacturing practice (GMP) regulations, also causing the products to be adulterated under the FDCA.

Under the plea agreement, KVK Research agreed to a proposed fine and forfeiture amount of $1.5 million, and KVK Tech agreed to a three year deferred prosecution agreement that allows KVK Tech to avoid conviction on the FDCA charges if it complies with the terms of the agreement, which includes implementing a compliance program to prevent and detect violations of GMP regulations and engaging an independent compliance monitor to evaluate the company’s corporate compliance program to address and reduce the risk of future violations

Separate from the plea agreement, KVK Tech Inc. also agreed to pay $2 million to resolve its civil liability under the FCA arising from false claims submitted to federal healthcare plans related to the adulterated drugs.

1. 2. Endo Health Solutions Inc.[7]

Endo Health Solutions Inc. (EHSI) pleaded guilty to one misdemeanor count of introducing misbranded drugs into interstate commerce in violation of the FDCA related to the distribution of the opioid medication Opana ER with INTAC (Opana ER).

In pleading guilty, EHSI admitted that from April 2012 through May 2013, certain EHSI sales representatives marketed Opana ER to prescribers by touting the drug’s purported abuse deterrence, tamper resistance, and/or crush resistance, despite a lack of clinical data supporting those claims. Specifically, EHSI sales managers were aware that sales representatives were making claims of purported abuse deterrence, tamper resistance, and/or crush resistance during sales calls, including hitting demonstration “blister packs” of non-medicated sample pills with hammers and conducting other demonstrations to convey the unsupported message that Opana ER was crush proof and tamper resistant.

In the plea agreement, EHSI admitted that, in January 2011 FDA recommended that Opana ER’s “product label should not include language asserting that [it] provides resistance to crushing, because it may provide a false sense of security since the product may be chewed and ground for subsequent abuse.” EHSI also admitted that FDA denied EHSI’s proposed abuse deterrent and crush resistant language on two separate occasions: in February 2012 in a marketing claims review letter and again in February 2013 in denying new labeling for Opana ER. Despite these statements from FDA, EHSI allowed its sales representatives to make claims of abuse deterrence and crush resistance, as described above.

In the press release announcing the criminal fines related to the guilty plea, FDA emphasized that the sentencing demonstrates the FDA and DOJ commitment to addressing the opioid crisis in the United States, highlighting that EHSI did not provide accurate information about the safety and abuse potential of their product, putting patients at additional risk of abuse and addition.

Under the plea agreement, EHSI agreed to pay a criminal fine of $1.086 billion and an additional $450 million in criminal forfeiture. However, as EHSI was in bankruptcy at the time of the settlement, the government obtained an agreement in the bankruptcy case that consolidated EHSI’s criminal fine with the civil penalty noted below (based on violations of the FCA). Under the bankruptcy agreement, the government will be paid up to $454.9 million over ten years.

1. 3. John W. Kosolcharoen[8]

John W. Kosolcharoen, founder and chief executive officer of two companies that manufactured and distributed injectable stem cell products made from human umbilical cord blood, pleaded guilty to a felony charge of introducing an unapproved new drug into interstate commerce in violation of the FDCA with the intent to defraud and mislead.

In pleading guilty, Kosolcharoen admitted that he and others misrepresented the injectable stem cell products as suitable for the treatment of a variety of conditions, such as lung and heart diseases, autoimmune disorders, Alzheimer’s disease, Parkinson’s disease, and others. Additionally, Kosolcharoen admitted that he and others marketed the products using advertising materials that contained multiple false and misleading statements about their purported safety and effectiveness. Kosolcharoen also admitted that, in an effort to mislead FDA about the activities, he directed the purchase orders to falsely state that the stem cell products were being sold “for research purposes only.”

After several reports to FDA and CDC of patients in multiple states requiring hospitalization for bacterial infections after receiving the stem cell products, Kosolcharoen admitted that he and others misled customers about the cause and severity of the adverse events suffered by the patients, including concealing material facts regarding the outcome of an FDA inspection.

D. Medical Devices

1. 1. Philips RS North America LLC [9]

Philips RS North America LLC (Philips Respironics), its parent company Philips Holding USA Inc., and its subsidiary Respironics California, along with certain executives, agreed to a consent decree to resolve claims that Philips RS North America LLC violated the FDCA by manufacturing and distributing adulterated and misbranded continuous positive pressure (CPAP) machines, bi-level positive airway pressure (BiPAP) machines, and mechanical ventilators.

The complaint alleged that Philips Respironics violated the FDCA by:

• manufacturing its medical devices under conditions and using practices that failed to comply with the FDCA and with GMP regulations;
• failing to submit written reports of manufacturer-initiated corrections or removals for its medical devices to FDA; and
• failing to validate and approve the process the company used to perform remediation work on certain recalled ventilators according to established procedures.

The complaint also alleged that FDA identified similar violations during previous inspections, which resulted in two FDA warning letters to Philips Respironics, an FDA warning letter to its subsidiary Respironics California LLC, and a civil lawsuit and consent decree with another subsidiary of Philips Holding USA Inc., Philips North America LLC.

Under the consent decree, the defendants agreed to restrict the production and sale of certain medical devices from several of the defendants’ facilities until certain conditions are met, including retaining an outside expert to inspect the defendants’ facilities, methods, and controls to determine compliance with GMPs and obtaining written notification from FDA that the defendants appear to be in compliance with the FDCA and the consent decree. The consent decree also requires implementation of a “Recall Remediation Plan,” agreed to by FDA and Philips Respironics, related to Philips Respironics’ June 2021 recall[10] of certain ventilators, CPAP machines, and BiPAP machines.

E. Tobacco Products

1. 1. Boosted LLC[11]

In the first enforcement action finalized since the DOJ and FDA announced the creation of a federal multi-agency task force to combat the illegal distribution and sale of e-cigarettes, Boosted LLC, a manufacturer of ENDS, and its owner Cory Vigil agreed to settle alleged violations of the FDCA.

Specifically, the complaint alleged that the defendants violated the FDCA by introducing adulterated and misbranded tobacco products into interstate commerce. The government alleged that the defendants’ ENDS products were adulterated and misbranded because they did not have the required premarket authorization from FDA. Despite repeated warnings from FDA that the defendants must obtain premarket authorization from FDA before selling their products in the United States, the defendants continued to sell their products online in violation of the FDCA.

As part of the settlement, the defendants agreed to be bound by a consent decree. Under the consent decree, the defendants are prohibited from directly or indirectly manufacturing, distributing, selling, and/or offering for sale any new tobacco product until they meet certain requirements, including obtaining FDA marketing authorization and FDA inspection of defendants’ facilities to confirm compliance with the law.

FTC Act & COVID-19 Consumer Protection Act

Below is a review of two settlements (non-litigated resolutions) between the government and the food and drug industry involving alleged violations of the FTC Act and the COVID-19 Consumer Protection Act.

F. Dietary Supplements

1. 1. Precision Patient Outcomes, Inc.[12]

Precision Patient Outcomes, Inc. (PPO) agreed to settle claims it falsely advertised its “COVID Resist” dietary supplement as able to treat, prevent, or mitigate COVID-19 in violation of the FTC Act and the COVID-19 Consumer Protection Act.

The complaint alleged that PPO made unsubstantiated claims that its “COVID Resist” dietary supplement could treat, prevent, or mitigate COVID-19 and also falsely claimed to have scientific evidence to support the claims. The complaint also alleged that, after learning about an FTC enforcement action against another company making similar claims, PPO changed the name of its product from “COVID Resist” to “VIRUS Resist” and continued deceptively advertising it as an effective treatment for COVID-19.

Under the settlement, PPO is banned from:

• making any claims that any product prevents or reduces the likelihood of infection with, or transmission of, the COVID-19 virus; that any product reduces the severity or duration of COVID-19; or otherwise cures, mitigates, or treats COVID-19, unless FDA has approved the claim;
• representing that any drug, food, or dietary supplement cures, mitigates, or treats any disease unless PPO has competent and reliable scientific evidence (which means human clinical testing that is randomized, double-blind, and placebo controlled) to support the claims made; and
• misrepresenting the health benefits or efficacy of any drug, food, or dietary supplement or the results of any tests or studies.

Finally, the settlement also requires PPO to notify all customers who purchased the products after May 1, 2021, through the date of entry of the order granting the proposed settlement of the details of the settlement, through use of PPO’s websites, social media, and use of customers’ e-mail or mailing addresses.

Although the COVID-19 Consumer Protection Act allows the FTC to seek civil penalties in cases of COVID-related consumer fraud, the settlement did not require PPO to pay any monetary penalties.

G. Medical Devices

1. 1. Razer, Inc.[13]

Razer, Inc., agreed to settle claims that it violated the FTC Act and COVID-19 Consumer Protection Act by falsely claiming their face masks as an equivalent to N95 certified respirators.

The complaint alleged that Razer misrepresented its face masks as N95-equivalent masks that met standards established by NIOSH. However, Razer never sought approval from NIOSH for any type of certification for its face masks and NIOSH accordingly never certified any version of Razer’s face mask as an N95 respirator. Razer also did not have permission from NIOSH to use the term “N95” in marketing and selling its products.

Under the settlement, Razer is banned from:

• making, without prior FDA approval, any claims that any product prevents or reduces the likelihood of infection with, or transmission of, the COVID-19 virus, reduces the severity or duration of COVID-19, or otherwise cures, mitigates, or treats COVID-19;
• representing the health benefits, performance, efficacy, safety, or side effects of protective goods and services (defined as any good or service designed, intended, or represented to detect, treat, prevent, mitigate, or cure COVID-19 or any other infectious disease, including, but not limited to, personal protective equipment, hand sanitizer, and thermometers), unless they have competent and reliable scientific evidence to support the claims made;
• making marketing and advertising misrepresentations that imply any goods or services are affiliated with, endorsed, certified, cleared, authorized, approved by, registered, or otherwise connected to any government entity.

Additionally, under the settlement Razer agreed to pay more than $1.1 million to the United States, which will allow FTC to provide full refunds to customers.

False Claims Act & Anti-Kickback Statute

Below is a review of some of the key FCA and AKS settlements between the food and drug industry and the government in 2024.

A. Drugs

1. 1. Endo Health Solutions Inc.[14]

In addition to agreeing to resolve a criminal investigation as noted above, Endo Health Solutions Inc. (EHSI) also agreed to resolve a civil investigation related to claims that EHSI’s sales and marketing of the opioid drug Opana ER with INTAC (Opana ER) violated the FCA.

The complaint alleged that, from 2011 to 2017, EHSI targeted healthcare providers that EHSI knew were prescribing Opana ER for non-medically accepted indications. Specifically, the complaint alleged that EHSI was aware that fewer than 10% of Opana ER prescribers wrote more than half of all Opana ER prescriptions yet continued to focus its marketing on those healthcare providers who prescribed the highest level of opioids in general and Opana ER in particular. The complaint further alleged that when EHSI employees raised concerns about targeting these prescribers, EHSI ignored or minimized such concerns.

The complaint also alleges that EHSI sought to further increase prescriptions by partnering with a consulting company that targeted prescribers chosen solely because they prescribed a high volume of opioids in general or Opana ER in particular. As part of these marketing activities, EHSI allegedly targeted prescribers who previously had been excluded from EHSI’s call lists as posing risks of abuse and diversion.

Under the civil settlement, EHSI agreed to pay $475.6 million. However, as EHSI was in bankruptcy at the time of the settlement, the government obtained an agreement in the bankruptcy case that consolidated EHSI’s civil penalty with the criminal fine. Under the bankruptcy agreement, the government will be paid up to $454.9 million over ten years.

1. 2. Teva Pharmaceuticals USA Inc.[15]

Teva Pharmaceuticals USA Inc. (Teva USA) and Teva Neuroscience Inc. (collectively, Teva), the largest generic drug manufacturer in the country, agreed to pay $450 million to resolve two separate matters alleging violations of the FCA and AKS.

In the first matter, the government alleged that Teva violated the FCA and AKS by paying Medicare patients’ copays for the multiple sclerosis drug Copaxone from 2006 through 2017, while steadily raising Copaxone’s price. Specifically, the government alleged that Teva conspired with specialty pharmacies and two allegedly independent copay assistance foundations to ensure that Teva’s purported donations to the foundations were used specifically to cover the copays of Medicare Copaxone patients, which Teva knew was prohibited by the AKS.

In the second matter, the government alleged that Teva conspired with other generic drug manufactures to fix prices for pravastatin, a drug used to treat high cholesterol and triglyceride levels, as well as two other generic drugs, clotrimazole and tobramycin. The government alleged that the benefits Teva received under this price fixing scheme constituted illegal kickbacks in violation of the AKS.[16]

B. Medical Devices

1. 1. Innovasis Inc.[17]

Spinal device manufacturer Innovasis Inc. and senior executives agreed to pay $12 million to resolve allegations that they violated the FCA by paying kickbacks to spine surgeons to encourage them to use Innovasis’s spinal devices.

The government alleged that the illegal kickbacks Innovasis provided to spine surgeons included consulting fees, intellectual property acquisition and license fees, registry payments, performance shares in Innovasis, travel to a luxury ski resort, and lavish diners for the surgeons, their office staff, and family members. For example, the government alleged that Innovasis paid the surgeons for consulting services at rates significantly higher than fair market value, or, in some cases, for work that was never actually performed. The government also alleged that Innovasis paid the surgeons to attend a company-sponsored conference at a luxury resort in Deer Valley, Utah, where Innovasis paid for the cost of travel, lodging, and high-end travel, among other things.

C. Healthcare Services

1. 1. RDx Bioscience Inc.[18]

RDx Bioscience Inc. (RDx), a clinical laboratory, and its owner and CEO agreed to pay $10.3 million to resolve allegations that they violated the FCA and AKS by paying illegal kickbacks to induce referrals to RDx for laboratory testing.

The government alleged that RDx paid illegal kickbacks by, for example, paying commissions based on the volume and value of Medicare and Medicaid referrals to independent contract marketers to arrange for and recommend that healthcare providers order RDx laboratory tests; paying healthcare providers thousands of dollars in management service organization (MSO) payments, which were disguised as investment returns but were actually offered to induce those providers to order RDx laboratory tests; and paid thousands of dollars to healthcare providers that were disguised as consulting or medical director fees but were actually offered to induce orders for RDx laboratory tests.

1. 2. Daniel Hurt[19]

Daniel Hurt agreed to pay over $27 million to resolve allegations that he and his companies conspired with others to violate the FCA and AKS by submitting false claims for cancer genomic tests that were not medically necessary and by receiving illegal kickbacks in exchange for referrals.

The government alleged that Hurt conspired with:

• telemarketing agents to solicit Medicare beneficiaries for “free” cancer genomic tests;
• telemedicine providers to “prescribe” cancer genomic tests that were not medically necessary;
• reference laboratories to conduct the cancer genomic tests; and
• billing laboratories and a hospital to submit claims for payment to the Centers for Medicare and Medicaid Services.

Under the settlement agreement, Hurt agreed to pay over $27 million, which is based on Hurt’s ability to pay.[20]

1. 3. Rite Aid Corporation[21]

Rite Aid Corporation (Rite Aid) and ten subsidiaries and affiliates agreed to settle alleged violations of the FCA and the Controlled Substances Act (CSA) related to filling unnecessary prescriptions for opioids.

The government alleged that Rite Aid knowingly dispensed unlawful prescriptions for controlled substances that either lacked a legitimate medical purpose or were not valid prescriptions. The allegedly unlawful prescriptions included prescriptions for the highly diverted combination of drugs known as “the trinity,” prescriptions for excessive quantities of highly addictive opioids, and prescriptions issued by prescribers who Rite Aid pharmacists had repeatedly identified internally as suspicious and as writing unlawful, unnecessary prescriptions.

The government also alleged that Rite Aid continued to fill these prescriptions despite substantial evidence that its stores were dispensing unlawful prescriptions, including specific concerns raised by its pharmacists and intentionally deleted internal notes about suspicious prescribers written by Rite Aid pharmacists, such as “writing excessive dose[s] for oxycodone,” and “DO NOT FILL CONTROLS.”

The settlement also resolved claims that certain Rite Aid pharmacies in Washington State violated the CSA by filling prescriptions written by prescribers who lacked proper controlled substance prescribing authority. The settlement also resolves claims brought under the qui tam provisions of the FCA.

In addition to the settlement, Rite Aid also entered into agreements with DEA and HHS-OIG to address ongoing obligations. Under these agreements, Rite Aid agreed to provide employees with additional training to help them identify illegitimate prescriptions and minimize the risk of drug diversion, and implementing an anonymous hotline for employees, patients, and the public to report suspected illegal dispensing of highly diverted controlled substances. Rite Aid also entered into a corporate integrity agreement with HHS-OIG, which requires that an independent review organization conduct a review to determine whether prescription drugs are properly prescribed, dispensed, and billed.

1. 4. Strauss Ventures LLC (d/b/a The Grand Health Care System)[22]

Strauss Ventures LLC and twelve affiliated skilled nursing facilities (collectively, the Grand) agreed to pay $21.3 million to resolve allegations that they violated the FCA by knowingly billing federal healthcare programs for therapy services that were unreasonable, unnecessary, unskilled, or that simply did not occur as billed.

The government alleged that the Grand knowingly submitted false claims for rehabilitation therapy for residents at its nursing facilities. The Grand allegedly submitted bills to Medicare and TRICARE where the reimbursement claimed was based on providing more therapy than was reasonable and necessary, or where the therapist did not provide the amount of therapy reported.

As part of the settlement, the Grand admitted that management implemented quotas that each skilled nursing facility was expected to reach, including quotas related to beneficiaries’ lengths of stay and to the percentage of beneficiaries billed at the highest reimbursement level. To meet these quotas, the Grand directed that no more than three patients be discharged from any facility per week and that no Medicare patients should be discharged from rehabilitation therapy unless it had been discussed with corporate officials. The Grand admitted that this resulted in Medicare beneficiaries staying on therapy longer than was reasonable and medically necessary. The Grand also admitted that in some instances supervisory officials, who did not personally evaluate or treat patients, set or adjusted the number of minutes of therapy that a Medicare patient would receive.

1. 5. DaVita Inc.[23]

DaVita Inc., a provider of dialysis services, agreed to pay $35.4 million to resolve allegations that it violated the FCA by paying illegal kickbacks to competitors to induce referrals to a former subsidiary and to physicians to induce referrals to DaVita’s dialysis centers.

The government alleged that DaVita paid kickbacks to a competitor to induce referrals to DaVita Rx, a former subsidiary that provided pharmacy services for dialysis patients. Specifically, the government alleged that DaVita paid to acquire certain European dialysis clinics and agreed to extend a prior commitment to purchase dialysis products from the competitor in exchange for the competitor using DaVita Rx as a “central fill pharmacy” for the competitor’s Medicare patients’ prescription. The government alleged that DaVita would not have paid the price that it did for these deals without the competitor’s commitment to refer its Medicare patients’ prescriptions to DaVita Rx.

The government also alleged that DaVita provided management services to vascular access centers owned by physicians to induce the physicians to refer patients to DaVita’s dialysis clinics. The government alleged that DaVita did not collect management fees in an effort to induce referrals to DaVita’s dialysis centers.

Finally, the government also alleged that DaVita induced a large nephrology practice to provide referrals to DaVita’s dialysis clinics by giving the practice a right of first refusal to staff the medical director position at any new dialysis center that opened near the practice and paid the practice $50,000 despite the practice’s decision not to staff the medical director position for those clinics.

1. 6. Oak Street Health[24]

Oak Street Health agreed to pay $60 million to resolve claims that it violated the FCA by paying illegal kickbacks to third-party insurance agents in exchange for recruiting seniors to Oak Street Health’s primary care clinics.

The government alleged that Oak Street Health encouraged third-party insurance agents to contact seniors eligible for or enrolled in Medicare Advantage and then refer interested seniors to Oak Street Health by paying the insurance agents $200 per beneficiary referred or recommended to Oak Street Health.

1. 7. Acadia Healthcare Company Inc.[25]

Acadia Healthcare Company Inc., owner and operator of inpatient behavioral health facilities throughout the United States, agreed to pay $16.6 million to resolve allegations that it violated the FCA by billing for unnecessary inpatient behavioral health services and failing to properly discharge beneficiaries when they no longer needed inpatient treatment.

The government alleged that Acadia admitted beneficiaries who were not eligible for inpatient treatment and did not discharge beneficiaries when they no longer needed inpatient treatment. The government also alleged that Acadia did not provide adequate staffing, training, and/or supervision of staff, resulting in assaults, elopements, suicides, and other harm. Additionally, Acadia allegedly failed to provide inpatient acute care consistent with federal and state regulations, such as failing to provide active treatment, to develop and/or update individualized assessments and treatment plans, to provide adequate discharge planning, and to provide required individual and group therapy.

As part of the settlement, Acadia also agreed to pay an additional $3,186,082 to Florida, Georgia, Michigan, and Nevada to resolve state law claims.

1. 8. Rite Aid Corporation[26]

Rite Aid Corporation (Rite Aid), Rite Aid subsidiaries, Elixir Insurance Company, RX Options, and RX Solutions LLC agreed to pay $101 million to resolve claims that they failed to accurately report drug rebates to Medicare.

The government alleged that Rite Aid improperly reported portions of rebates they received from manufacturers as bona fide service feeds, even though manufacturers did not negotiate with Rite Aid, Elixir, RX Options, or RX Solutions for the fees.

As part of the settlement, the government also received an additional, allowed, unsubordinated general unsecured claim of $20 million in Rite Aid’s bankruptcy.

1. 9. Walgreens Boots Alliance & Walgreen Co.[27]

Walgreens Boots Alliance Inc. and Walgreen Co. (collectively, Walgreens) agreed to pay $106.8 million to resolve allegations that they violated the FCA and state statutes for billing government healthcare programs by billing for prescriptions that were never dispensed.

The government alleged that Walgreens received tens of millions of dollars for prescriptions that it processed and filled but that were never actually picked up by beneficiaries.

As part of the settlement agreement, Walgreens agreed to implement enhancements to its electronic pharmacy management system to prevent this from occurring in the future. Walgreens also received credit for $66,315,790 it previously refunded pertaining to the settled claims.

1. 10. Capstone Diagnostics[28]

Capstone Diagnostics, a clinical laboratory, and owner Andrew Maloney agreed to pay $14.3 million to resolve allegations that they violated the FCA by, among other things, submitting false claims related to unnecessary respiratory pathogen panels (RPPs), which are expensive panels that test for different respiratory pathogens.

The government alleged that Capstone paid independent contractor sales representatives to recommend RPPs to senior communities interested only in COVID-19 tests. Capstone’s independent sales representatives allegedly completed test requisition forms for RPPs using forged signatures of physicians who had only ordered COVID tests and sham diagnosis codes that did not reflect the medical conditions of the senior community residents receiving the tests. Capstone then allegedly billed federal healthcare programs for these medically unnecessary tests and paid the sales representatives a commission for each test.

1. 11. CityMD[29]

City Medical of the Upper East Side, PLLC, Summit Medical Group, P.A., Summit Health Management, LLC, and Village Practice Management Company, LLC, which collectively do business as CityMD and manage and operate urgent care practices, agreed to pay $12,037,109 to resolve allegations that they violated the FCA by submitting false claims for payment for COVID-19 testing to a Health Resources and Services Administration (HRSA) program for uninsured patients.

As background, during the COVID-19 pandemic, HRSA operated a program for reimbursement to healthcare providers for testing uninsured individuals for COVID-19, treating uninsured individuals with a COVID-19 diagnoses, and administering COVID-19 vaccines to uninsured individuals (the Uninsured Program).

The government alleged that CityMD knowingly submitted or caused to be submitted false claims for payment for COVID-19 testing to the Uninsured Program for individuals who had health insurance when CityMD administered those tests. Specifically, the government alleged that CityMD did not adequately confirm whether those individuals had health insurance coverage before submitting their claims to the Uninsured Program. The government also alleged that CityMD caused outside laboratories to submit false claims for COVID-19 testing to the Uninsured Program in connection with individuals who had health insurance coverage by issuing requisition forms erroneously indicating that patients were uninsured.

CityMD received credit in the settlement agreement due to the CityMd’s voluntary disclosure, cooperation, and remediation. Specifically, CityMD cooperated with the government’s investigation by voluntarily contracting with a third party to assist in determining the amount of losses caused by the claims submitted by CityMD.

1. 12. Covid Test DMV LLC (d/b/a Rapid Health)[30]

Covid Test DMV LLC, doing business as Rapid Health, a pharmacy in Los Angeles, agreed to pay $8,242,860 to resolve allegations it violated the FCA by knowingly submitting or causing the submission of false claims to Medicare for over-the-counter COVID-19 tests that were not provided to Medicare beneficiaries.

The government alleged that Rapid Health submitted claims to Medicare for over-the-counter COVID-19 tests ordered by Medicare beneficiaries, despite the fact that many of these tests were not shipped to beneficiaries due to an issue with Rapid Health’s processing procedures. The government alleged that, although Rapid Health was aware of these issues, Rapid Health continued to bill Medicare for tests that were not shipped.

Conclusion

These settlements illustrate the government’s commitment to combatting fraud in the food and drug space, including healthcare services. In 2024 we saw the first settlement between the government and a manufacturer of ENDS products for distributing tobacco products without the required marketing authorization in violation of the FDCA and anticipate that the government will continue to prioritize enforcement against ENDS products distributed without the required marketing authorization. We also expect that the government will continue to prioritize enforcement actions against entities and individuals for violations of the FCA, based on the current administration’s focus on combatting government waste and fraud.

*   Vanessa K. Fulton is an associate at Kleinfeld, Kaplan, and Becker. Vanessa advises on regulatory compliance, potential liability, and advertising-related issues involving tobacco, dietary supplement, food, cosmetic, pharmaceutical products, and medical devices. Vanessa also guides clients through the process of complying with regulatory strategies for product development and post-marketing compliance, as well as advertising and labeling issues. Before joining Kleinfeld Kaplan & Becker, Vanessa worked as a litigation associate at a global law firm in Phoenix, Arizona, representing clients in class action and complex litigation matters, including representing dietary supplement manufacturers in connection with false advertising and unfair competition class actions. Vanessa also served as an advisor to clients in connection with product labeling inquiries before the Federal Trade Commission (FTC) and the National Advertising Division of the Better Business Bureau (NAD).

[1]   Justice Department and FDA Announce Federal Multi-Agency Task Force to Curb Distribution and Sale of Illegal E-Cigarettes, U.S. Dep’t of Just. (June 10, 2024), https://www.justice.gov/‌archives/‌opa/pr/justice-department-and-fda-announce-federal-multi-agency-task-force-curb-distribution-and.

[2]   Family Dollar Stores LLC Pleads Guilty to Holding Consumer Products under Insanitary Conditions, Agrees to Pay $41.675 Million in Connection with Rodent-Infested Warehouse, U.S. Dep’t of Just. (Feb. 26, 2024), https://www.justice.gov/archives/opa/pr/family-dollar-stores-llc-pleads-guilty-holding‌-‌‌consumer-products-under-insanitary-conditions.

[3]   Mississippi Seafood Distributor and Managers Plead Guilty to Conspiracy and Misbranding of Seafood, U.S. Dep’t of Just. (Aug. 27, 2024), https://www.justice.gov/archives/opa/pr/mississippi-seafood-distributor-and-managers-plead-guilty-conspiracy-and-misbranding-seafood.

[4]   Justice Department Obtains Injunction to Prevent California Company from Manufacturing and Distributing Adulterated Food Following Listeria Outbreak, U.S. Dep’t of Just. (Oct. 9, 2024), https://www.‌justice.gov/archives/opa/pr/justice-department-obtains-injunction-prevent-california-company-manufacturing-and.

[5]   Texas Company Pleads Guilty to Distributing Misbranded Dietary Supplements and Agrees to $4.5 Million Forfeiture, U.S. Dep’t of Just. (Jan. 12, 2024), https://www.justice.gov/archives/opa/pr/texas-company-pleads-guilty-distributing-misbranded-dietary-supplements-and-agrees-45.

[6]   Generic Pharmaceuticals Manufacturer Pleads Guilty, Agrees to $1.5 Million Criminal Penalty for Distributing Adulterated Drugs and $2 Million to Resolve Civil Liability under the False Claims Act, U.S. Dep’t of Just. (Mar. 6, 2024), https://www.justice.gov/archives/opa/pr/generic-pharmaceuticals-manufacturer-pleads-guilty-agrees-15-million-criminal-penalty.

[7]   Opioid Manufacturer Endo Health Solutions Inc. Ordered to Pay $1.536B In Criminal Fines and Forfeiture for Distributing Misbranded Opioid Medication, U.S. Food & Drug Admin. (May 3, 2024), https://www.fda.gov/inspections-compliance-enforcement-and-criminal-investigations/doj-press-releases-involving-fda-oci/opioid-manufacturer-endo-health-solutions-inc-ordered-pay-1536b-criminal-fines-and-forfeiture; Opioid Manufacturer Endo Health Solutions Inc. Agrees to Global Resolution of Criminal and Civil Investigations into Sales and Marketing of Branded Opioid Drug, U.S. Dep’t of Just. (Feb. 29, 2024), https://www.justice.gov/archives/opa/pr/opioid-manufacturer-endo-health-solutions-inc-agrees-global‌-resolution-criminal-and-civil.

[8]   Founder and Chief Executive Officer of Injectable Stem Cell Product Manufacturer Pleads Guilty to Felony Distribution of Unapproved Drug, U.S. Dep’t of Just. (Aug. 27, 2024), https://www.‌justice.gov/archives/opa/pr/founder-and-chief-executive-officer-injectable-stem-cell-product-manufacturer-pleads-guilty.

[9]   Court Enjoins Philips Respironics from Manufacturing and Distributing Adulterated and Misbranded Sleep and Respiratory Devices at or from Three Pennsylvania Facilities, U.S. Dep’t of Just. (Apr. 9, 2024), https://www.justice.gov/archives/opa/pr/court-enjoins-philips-respironics-manufacturing-and-‌distributing-adulterated-and-misbranded.

[10] Recalled Philips Ventilators, BiPAP Machines, and CPAP Machines, U.S. Food & Drug Admin. (current as of Nov. 20, 2024), https://www.fda.gov/medical-devices/respiratory-devices/recalled-philips-ventilators-bipap-machines-and-cpap-machines.

[11] Court Orders Colorado e-Cigarette Maker to Stop Selling Unauthorized Vaping Products, U.S. Dep’t of Just. (June 18, 2024), https://www.justice.gov/archives/opa/pr/court-orders-colorado-e-cigarette-maker-stop-selling-unauthorized-vaping-products.

[12] FTC Order Will Ban California-based Company from COVID-19 Advertising Claims, Fed. Trade Comm’n (Feb. 15, 2024), https://www.ftc.gov/news-events/news/press-releases/2024/02/ftc-order-will-ban-california-based-company-covid-19-advertising-claims.

[13] Razer, Inc. to Pay More Than $1.1 Million for Misrepresenting the Performance and Efficacy of Supposed “N95-Grade” Zephyr Face Masks, Fed. Trade Comm’n (Aug. 29, 2024), https://www.ftc.‌gov/‌news-events/news/press-releases/2024/04/razer-inc-pay-more-11-million-misrepresenting-performance-efficacy-supposed-n95-grade-zephyr-face.

[14] Opioid Manufacturer Endo Health Solutions Inc. Agrees to Global Resolution of Criminal and Civil Investigations into Sales and Marketing of Branded Opioid Drug, U.S. Dep’t of Just. (Feb. 29, 2024), https://www.justice.gov/archives/opa/pr/opioid-manufacturer-endo-health-solutions-inc-agrees-global-resolution-criminal-and-civil.

[15] Drug Maker Teva Pharmaceuticals Agrees to Pay $450M in False Claims Act Settlement to Resolve Kickback Allegations Relating to Copayments and Price Fixing, U.S. Dep’t of Just. (Oct. 10, 2024), https://www.justice.gov/archives/opa/pr/drug-maker-teva-pharmaceuticals-agrees-pay-450m-false-claims-act-settlement-resolve-kickback.

[16] This is in addition to the $225 million criminal penalty Teva agreed to pay in 2023 to resolve related criminal charges. Major Generic Drug Companies to Pay Over Quarter of a Billion Dollars to Resolve Price-Fixing Charges and Divest Key Drug at the Center of Their Conspiracy, U.S. Dep’t of Just. (Aug. 21, 2023), https://www.justice.gov/archives/opa/pr/major-generic-drug-companies-pay-over-quarter-billion‌-dollars-resolve-price-fixing-charges.

[17] Medical Device Manufacturer Innovasis Inc. and Two Top Executives Agree to Pay $12M to Settle Allegations of Improper Payments to Physicians, U.S. Dep’t of Just. (May 29, 2024), https://www.‌justice.‌gov/archives/opa/pr/medical-device-manufacturer-innovasis-inc-and-two-top-executives-agree-pay‌-12m-settle.

[18] New Jersey Laboratory and Its Owner and CEO Agree to Pay Over $13 Million to Settle Allegations of Kickbacks and Unnecessary Testing, U.S. Dep’t of Just. (Jan. 10, 2024), https://www.justice.gov/archives/opa/pr/new-jersey-laboratory-and-its-owner-and-ceo-agree-pay-over-13-million-settle-allegations.

[19] Florida Businessman Daniel Hurt to Pay over $27 Million for Medicare Fraud in Connection with Cancer Genomic Tests, U.S. Dep’t of Just. (May 24, 2024), https://www.justice.gov/usao-sdfl/pr/florida-businessman-daniel-hurt-pay-over-27-million-medicare-fraud-connection-cancer.

[20] Hurt previously pleaded guilty to criminal healthcare fraud for these same offenses. Florida Businessman Pleads Guilty in Three Cases Involving Conspiracies to Commit Health Care Fraud, Pay and Receive Unlawful Kickbacks, and Money Laundering, U.S. Dep’t of Just. (Sept. 15, 2022), https://www.‌justice.gov/usao-wdpa/pr/florida-businessman-pleads-guilty-three-cases-involving-conspiracies-commit-health-care.

[21] Rite Aid Corporation and Affiliates Agree to Settle False Claims Act and Controlled Substance Act Allegations Related to Opioid Dispensing, U.S. Dep’t of Just. (July 10, 2024), https://www.justice.‌gov/‌archives/opa/pr/rite-aid-corporation-and-affiliates-agree-settle-false-claims-act-and-controlled-substance.

[22] The Grand Health Care System and 12 Affiliated Skilled Nursing Facilities to Pay $21.3M for Allegedly Providing and Billing for Fraudulent Rehabilitation Therapy Services, U.S. Dep’t of Just. (July 10, 2024), https://www.justice.gov/archives/opa/pr/grand-health-care-system-and-12-affiliated-skilled-nursing‌-facilities-pay-213m-allegedly.

[23] DaVita to Pay Over $34M to Resolve Allegations of Illegal Kickbacks, U.S. Dep’t of Just. (July 18, 2024), https://www.justice.gov/archives/opa/pr/davita-pay-over-34m-resolve-allegations-illegal-kickbacks.

[24] Oak Street Health Agrees to Pay $60M to Resolve Alleged False Claims Act Liability for Paying Kickbacks to Insurance Agents in Medicare Advantage Patient Recruitment Scheme, U.S. Dep’t of Just. (Sept. 18, 2024), https://www.justice.gov/archives/opa/pr/oak-street-health-agrees-pay-60m-resolve-alleged‌-‌false-claims-act-liability-paying-kickbacks.

[25] Acadia Healthcare Company Inc. to Pay $19.85M to Settle Allegations Relating to Medically Unnecessary Inpatient Behavioral Health Services, U.S. Dep’t of Just. (Sept. 26, 2024), https://www.justice.gov/archives/opa/pr/acadia-healthcare-company-inc-pay-1985m-settle-allegations-relating-medically-unnecessary.

[26] Rite Aid Corporation and Elixir Insurance Company Agree to Pay $101M to Resolve Allegations of Falsely Reporting Rebate, U.S. Dep’t of Just. (July 10, 2024), https://www.justice.gov/‌archives/opa/pr/rite-aid-corporation-and-elixir-insurance-company-agree-pay-101m-resolve-allegations-falsely.

[27] Walgreens Agrees to Pay $106.8M to Resolve Allegations It Billed the Government for Prescriptions Never Dispensed, U.S. Dep’t of Just. (Sept. 13, 2024), https://www.justice.‌gov/‌opa/‌pr/walgreens-agrees-pay-1068m-resolve-allegations-it-billed-government-prescriptions-never.

[28] Georgia Laboratory Owner Pleads Guilty to Felony Charge and Pays $14.3 Million to Resolve Liability Relating to Kickbacks and Unnecessary Testing, U.S. Dep’t of Just. (Feb. 28, 2024), https://www.justice.gov/archives/opa/pr/georgia-laboratory-owner-pleads-guilty-felony-charge-and-pays-143-million-resolve-liability.

[29] CityMD Agrees to Pay Over $12M for Alleged False Claims to the COVID-19 Uninsured Program, U.S. Dep’t of Just. (June 7, 2024), https://www.justice.gov/archives/opa/pr/citymd-agrees-pay-over-12-million-alleged-false-claims-covid-19-uninsured-program.

[30] Rapid Health Agrees to Pay $8.2M for Allegedly Billing Medicare for Over-the-Counter COVID-19 Tests That Were Not Provided to Beneficiaries, U.S. Dep’t of Just. (Dec. 20, 2024), https://www.‌justice.‌gov/archives/opa/pr/rapid-health-agrees-pay-82m-allegedly-billing-medicare-over-counter-covid-19-tests-were-not.