Cybersecurity Failures and Liability for Health Care Organizations: A New Enforcement Frontier

Cybersecurity Failures and Liability for Health Care Organizations: A New Enforcement Frontier

False Claims Act (FCA) investigations and litigation attorneys Jacques Smith, Pat Naples, and John Keblish authored a piece for Chief Healthcare Executive on the key regulatory developments and emerging areas of risk in cybersecurity-specific FCA settlements.

Read the article in Chief Healthcare Executive here.

FCA Qui Tam Provisions Face Renewed Constitutional Scrutiny in Ninth Circuit 340B Litigation

A coalition of four pharmaceutical companies — AbbVie, AstraZeneca, Novartis, and Sanofi — has petitioned the Ninth Circuit Court of Appeals for en banc rehearing of a recent panel decision challenging the constitutionality of the FCA’s qui tam or “whistleblower” provisions as impermissibly delegating executive authority to private parties in violation of Article II of the Constitution.

Under Medicaid’s Section 340B Drug Pricing Program, drug manufacturers participating in Medicaid must sell certain outpatient drugs to eligible health care facilities at capped prices, calculated by a formula and known as ceiling prices. The 340B Program facilitates annual transactions valued in the 10s of billions of dollars.

In 2021, Adventist Health System sued the four pharmaceutical companies, claiming they failed to report accurate 340B ceiling prices for their drugs, resulting in years of overcharging. The alleged misconduct occurred prior to 2019 regulations which introduced significant penalties for 340B violations but did not apply retroactively. While a federal court initially dismissed Adventist’s claims in March 2024, the Ninth Circuit Court of Appeals reversed the dismissal in March of this year, recognizing the viability of FCA liability in the 340B context. 

The pharmaceutical companies seek a rehearing of the Ninth Circuit’s decision, contending that this case presents a compelling illustration of the problem. In their view, Adventist is leveraging the FCA to characterize alleged conduct as fraudulent even though the executive branch had not deemed such conduct to be in violation of existing law during the relevant period. The defense argues that by empowering a private party to pursue enforcement where the government itself has declined to act — and indeed where no retroactive penalty framework existed —the qui tam mechanism encroaches on executive authority over law enforcement.

The petition builds on concerns articulated by Justices Clarence Thomas, Brett Kavanaugh, and Amy Coney Barrett regarding the constitutionality of the FCA’s qui tam mechanism. Moreover, the petition is the latest attempt by defendants in an FCA action to question the constitutionality of the FCA’s qui tam provisions, which we have previously covered here. The Ninth Circuit’s decision on whether to grant en banc rehearing should be closely watched by pharmaceutical manufacturers, health care providers, whistleblower advocates, and government enforcement agencies alike.

The case is U.S. ex rel. Adventist Health System of West v. AbbVie Inc. et al., No. 24-2180 (9th Cir.).

Former Medical Billing CEO Receives 5-Year Sentence for Role in $212.5 Million Fraud Scheme

On May 6, a federal judge in the District of New Jersey sentenced Parmjit Parmar, the former chief executive officer of Constellation Healthcare Technologies Inc., to five years in prison for participating in a conspiracy that defrauded investors of approximately $212.5 million. Parmar was additionally ordered to pay restitution of approximately $58.6 million to Bank of America and $66.4 million to CC Capital Management LLC, totaling just over $125 million. The sentencing follows Parmar’s guilty plea in May 2025 to conspiracy to commit securities fraud.

According to the government, Parmar and three co-conspirators orchestrated a fraud scheme designed to artificially inflate the company’s value in connection with a take-private transaction. A private investment firm contributed approximately $82.5 million to finance the deal, and a consortium of financial institutions provided an additional $130 million, bringing the total transaction value to approximately $212.5 million.

Prosecutors allege that the conspirators deceived investors and artificially inflated Constellation’s apparent worth by raising 10s of millions of dollars through public offerings purportedly to fund acquisitions of operating subsidiaries. Yet, per the government, a number of the subsidiaries either did not exist or produced only a small fraction of the income attributed to them. The conspirators then routed offering proceeds through bank accounts under their control.

Prosecutors further allege that, to conceal the scheme, the conspirators fabricated fictitious customers, altered bank records to disguise diverted funds as legitimate revenue, falsified financial statements of subsidiary entities, and made material misrepresentations and omissions to investors. As a result, victims were allegedly led to believe Constellation was worth more than $300 million for purposes of the take-private deal.

The fraud scheme unraveled in September 2017, when Parmar and his co-conspirators resigned or were terminated from the company. Then, in March 2018, Constellation and several affiliated entities filed for bankruptcy, attributing their collapse largely to the fraudulent activity.

Pavandeep Bakhshi, another former Constellation executive, was sentenced in 2023 to pay a $5,000 fine but received no prison time. Meanwhile, charges remain pending against two other individuals allegedly involved in the scheme — former director Ravi Chivukula and former CEO Sotirios Zaharis — both of whom have reportedly fled and whose whereabouts are unknown.

The case is U.S. v. Parmar et al., No. 2:18-cr-00735 (D.N.J.).

Mobile PET Scan Provider Agrees to Pay $8.3 Million To Resolve FCA Allegations

On May 1, the US Department of Justice (DOJ) announced that Modern Nuclear Inc., a provider of mobile positron emission tomography (PET) scans headquartered in La Habra, California, agreed to pay approximately $8.3 million to resolve allegations that it violated the FCA by paying unlawful kickbacks to referring cardiologists in violation of the Anti-Kickback Statute (AKS). The settlement amount was negotiated based on MNI’s ability to pay.

Prosecutors allege that between September 1, 2016, and January 14, 2025, MNI knowingly submitted false or fraudulent claims to federal health care programs that arose from violations of the AKS. Per the government, MNI paid kickbacks to referring cardiologists in the form of above-fair market value (FMV) fees, purportedly for those cardiologists to supervise PET scans for patients they referred to MNI. The government further alleges that these fees substantially exceeded FMV because MNI compensated the referring cardiologists for time they spent in their own offices caring for other patients, for time when they were not on site at all, or for additional services beyond supervision that were never or rarely actually provided. Notably, the government alleges that MNI had purported to rely on an attorney opinion letter regarding FMV, but that letter was premised on fundamental inaccuracies and was ultimately withdrawn by the consultant who issued it. 

Under the terms of the settlement, MNI will pay $8,334,350.71, with the potential for additional payments tied to the company’s future revenues. In connection with the settlement, MNI entered into a five-year Corporate Integrity Agreement (CIA) with the US Department of Health and Human Services Office of Inspector General (HHS-OIG). The CIA requires MNI to implement measures designed to ensure that its future arrangements with referring physicians comply with the AKS. The CIA also requires that MNI establish a compliance program to identify and address AKS risks associated with other financial arrangements and retain an Independent Compliance Expert to review the effectiveness of the compliance program. 

The settlement resolves claims originally brought as a whistleblower lawsuit filed under the qui tam provisions of the FCA. Under the settlement terms, the relators will receive 16% of the total recovery. 

The case is U.S. ex. rel. Lieberman v. Modern Nuclear Inc. et al., No. 8:23-cv-01646 (C.D. Cal.).

The claims resolved by the settlement are allegations only and there has been no determination of liability.

Read the DOJ’s press release here.

Eleventh Circuit Upholds Convictions and $29 Million Restitution Order in Fraudulent Military Export Pricing Scheme

On May 5, the 11th Circuit Court of Appeals affirmed the convictions and sentences of Byramji Javat and Luis Soto for their alleged participation in a multi-year scheme to defraud manufacturers by purchasing medical equipment goods at deeply discounted export-only prices through false representations that the products would be sold to the US military in Afghanistan. The Court of Appeals additionally upheld the District Court’s restitution and forfeiture orders, remanding only to correct clerical errors in Javat’s criminal judgment.

Per the government, between 2014 and 2017, Javat, acting through his Dubai-based wholesale company, told manufacturers he was a supplier to the US military and the Afghan government in order to secure export-only pricing — often half the domestic wholesale price. In reality, none of the goods were ever sold abroad. Instead, Javat’s logistics partner, Soto — a licensed customs broker in Florida — exported the goods to Dubai and immediately reimported them through Miami, filing false customs documentation to conceal the goods’ true origin and destination. The goods were then shipped to a warehouse in Georgia and resold domestically at prices undercutting the manufacturers.

Javat pleaded guilty to conspiracy to commit wire fraud, while Soto proceeded to trial and was convicted on all counts. Both were sentenced in December 2019, with Javat receiving 10 years imprisonment and Soto receiving six years imprisonment. The District Court calculated the fraud loss at $36.5 million, ordered joint and several restitution of approximately $29 million to 15 manufacturers, and imposed a forfeiture order of $26.2 million against Javat. Javat and Soto then appealed their convictions, sentences, restitution, and forfeiture on multiple grounds.

On appeal, the 11th Circuit rejected the defendants’ argument that the indictment merely alleged a “scheme to deceive” rather than a cognizable “scheme to defraud.” Citing relevant Supreme Court precedent, the Court of Appeals held that the wire fraud statute does not require proof that the victim was left economically worse off. Rather, it is sufficient that the defendant devised a scheme to obtain money or property “by means of false or fraudulent pretenses, representations, or promises.” The court found this standard plainly satisfied by the indictment’s allegations that the defendants obtained goods at steep discounts through fraudulent misrepresentations about their intended export.

The Court of Appeals additionally found sufficient evidence to sustain Soto’s conviction, noting emails and co-conspirator testimony demonstrating that Soto knew the reimportation scheme was designed to deceive manufacturers and that he actively participated in falsifying documentation to further it. With respect to sentencing, the court upheld all challenged guideline enhancements and denied Soto’s request for a minor-role reduction, finding that his specialized customs-broker skills were essential to executing the fraud. 

The case is U.S. v. Javat et al., No. 19-15168 (11th Cir.).