U.S. joins qui tam lawsuit over medical equipment for cancer patients

July 29, 1999 -- The Justice Department has joined a qui tam lawsuit alleging widespread fraud and falsification of medical records by two related southern California companies that manufactured and sold medical devices known as lymphedema pumps to cancer patients. The qui tam case was unsealed last week in federal district court in San Diego.

The companies — HealthCare One and World — are based in Encinitas, Calif. Two principals of both companies, Alan Cone and Jennifer Mitchell, were indicted last fall for conspiracy, mail fraud and wire fraud arising out of the allegations of record falsification. Cone and Mitchell are scheduled to go to trial in San Diego later this year.

The qui tam case was filed by Ray Pettersen, a resident of Vista, Calif. Pettersen was employed by HealthCare One as a sales manager for approximately six months during 1996.

While working for the company, Pettersen uncovered a practice of falsifying letters from physicians that purported to document that HealthCare One's products were medically necessary for various patients. Pettersen then resigned and brought his concerns as well as some of the forged records to the FBI.

The FBI's investigation confirmed a pattern of submitting claims to Medicare, Medi-Cal and private insurers for medical equipment that was not medically necessary and often never even received.

"Pettersen's decision to come forward to law enforcement with evidence of fraud shows that employers engaged in unethical conduct cannot count on blind loyalty from their employees," said Stephen Meagher, a San Francisco attorney at Phillips & Cohen, which represents Pettersen.

While the government joined the broad allegations of fraud and forgery in Pettersen's original case, they have not joined an allegation that HealthCare One and World had never received FDA approval for the devices they sold. Lymphedema pumps, like those manufactured by World and sold by HealthCare One, utilize pressurized sleeves that fit over the limbs of cancer patients to relieve swelling and the accumulation of lymph fluid. Medicare can pay more than $5,000 for each pump. For safety reasons, Medicare requires that any compressive device must have FDA approval to qualify for reimbursement.

"We continue to believe that the defendants never sought or received FDA approval for devices they sold and intend to pursue that claim on our own," Meagher said.

Pettersen filed the qui tam lawsuit under the federal False Claims Act, which allows individuals to sue companies and people who are defrauding the government. Defendants found liable can be required to pay three times the government's losses plus $5,000 to $10,000 for each false claim. Whistleblowers like Pettersen can receive between 15 percent and 30 percent of any funds the government recovers in the lawsuit. The federal government has recovered more than $2.5 billion as a result of qui tam cases since Congress strengthened the False Claims Act in 1986.

Cases referred to above are:

  • U.S. ex rel. Ray Pettersen v. HealthCare One and Alan C. Cone, case no. 97 CV 1850K (S.D. Cal.)

  • U.S. v. Alan Cone and Jennifer Mitchell, case no. 98CR3168BTM (S.D. Cal.)