Several Recent False Claims Act (FCA) Settlements

  • California University agrees to Pay $225,000 for allegedly violating ban on Incentive compensation
  • Lakeway Regional Medical Center LLC and Co-Defendants agree to pay mor than $15.3 million to settle allegations they fraudulently obtained government-insured loans and misused loan funds

FCA – Illegal college incentives

The US Department of Justice announced on Monday, October 19, 2020 that, thanks to a whistleblower. San Diego Christian College (SDCC), a California University, has agreed to pay $225,000 to settle claims brought under the federal False Claims Act. SDCC is based in Santee, California. Under the terms of the agreement, the university will pay $255,00 to resolve False Claims Act charges it submitted false claims to the US Department of Education.

The false claims, according to the DOJ’s lawyers, violated the federal prohibition on incentive-based compensation. Specifically, Title IV of the Higher Education Act (HEA) provides that higher education institutions can’t receive federal aid to compensate student recruiters – through a commissions, bonus, or other incentive payment – “based on the recruiters’ success in securing student enrollment.” The prohibition against incentive compensation is designed to protect students from “admissions and recruitment practices that serve the financial interests of the recruiter rather than the educational needs of the student.”

According to Acting Assistant Attorney General Bossert Clark of The DOJ’s civil division, students should come first (and not the university) when it comes to higher education enrollment decisions. “Offering recruiters financial incentives to enroll students undermines students’ ability to make educational decisions in their own best interests.”

The US Attorney for the District of South Carolina said that colleges should be a place for students to learn and develop – and not places where the universities and the recruiters watch out for their own financial interest. The US Attorney said that its office will continue to work to protect students for illegal recruiting incentives.

The Special Agent in Charge of the U.S. Department of Education Office of Inspector General’s Southern Regional Office said that the settlement helps maintain the integrity of federal student aid programs.

The federal False Claims Act was enacted back in the days of the administration of Abraham Lincoln. It had been amended several times. The aim of the law is to hold individuals and businesses accountable when they submit claims for services that were never rendered, bill for unnecessary services, provide kickbacks or incentives to obtain referrals and clients, and for other false billing practices. The law applies to false claims submitted to federal agencies sch as the US Department of Education.

In this case, SDCC had hired a California-based recruiting company to recruit those students to SDCC. The activity under questions occurred between 2014 and 2016. The federal government contended the SDCC paid the recruiter “with a share of the tuition that SDCC received from the enrollment of recruited students, in violation of the prohibition on incentive compensation.” 

The settlement amount was based on the university’s ability to pay. The settlement resolves claims that were brought by a whistleblower, a co-owner of the recruiting company, through the qui tam provisions of the federal False Claims Act. This qui tam right provides that private individuals can file the false claims charges through the US Department of Justice (or on their own if the DOJ declines to intervene). If the qui tam action is successful, the whistleblower is entitled to a percentage of the recovery. In this case, the whistleblower was awarded $33,750.

The case is captioned United States ex rel. Shoe v. San Diego Christian College, No. 6:16-cv-01570 (D.S.C.).

False Claims Act – fraudulently obtained government-insured loans

On Monday, September 28, 2020, the US Department of Justice announced that a medical center and other co-defendants agree to settle claims they obtained government insured loans and that they misused the loan funds. The amount of the settlement was for $15.3 million

The medical center agreed to pay more than $13.5 million. Several other companies and individuals agreed to collectively pay the remaining $1.8 million. The settlement was based on charges that the defendants violated the federal False Claims Act and other laws regarding the development of the Lakeway, Texas medical center. LRMC (the medical center) was “formed to develop and operate the hospital.” The other co-defendants helped in the development, management, and operation of the medical center.

The loans were insured by the Federal Housing Administration (FHA) – a part of the U.S. Department of Housing and Urban Development (HUD). The FHA insures loans used to build hospitals in underserved areas. The DOJ charged that the defendants made many false statements and omitted material information – “to overstate physician support for the hospital and understate other key credit risks, thereby obtaining the loan under false pretenses.

Among other allegations, the DOJ asserted that the defendants “delayed refunds to investors who had cancelled their investments to make it appear as if the project satisfied mortgage covenants regarding the cash on hand required to close the loan.” The DOJ also had charged that after obtaining the loans for the medical center, the defendants “distributed project funds in contravention of FHA’s requirements.” When LRMC defaulted, HUD, which had purchased the mortgage note, suffered a financial loss.

The DOJ emphasized that entities and people who benefit from FHA insurance must be honest with the government and must meet their commitments.

A HUD representative added that the settlement shows HUD’s commitment to holding people and entities who commit fraud involving HUD’s healthcare programs accountable. HUD worked in collaboration with the DOJ to “enforce HUD’s rules and protect FHA programs and their beneficiaries.”

The government parties emphasized that the fraud hurts undeserved communities who desperately need access to quality medical services. The lawsuit resolved by this settlement is captioned United States v. Lakeway Regional Medical Center, LLC, Case No. A-19-CV-945 (W.D. Tex.). The claims resolved by the settlement are allegations only, and there has been no determination of liability.

At the California Law Offices of Stephen A. Danz and Associates, our skilled California employee rights’ lawyers have been fighting for employees and filing False Claims Act cases for 40 years. We help whistleblowers prepare their disclosures in a timely and with the necessary documentation so the Department of Justice will be encouraged to intervene in your case. We file False Claims Act cases involving medical fraud and other types of fraud. To review your whistleblower claim, call us at 877-789-9707 or use our online contact form to make an appointment. Se habla espanol.