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Kickback scheme results in $12M damages’ award

Virginia Lawyers Weekly//June 6, 2023

Kickback scheme results in $12M damages’ award

Virginia Lawyers Weekly//June 6, 2023

Where the United States showed a company violated the False Claims Act by paying kickbacks in connection with Medicare submissions, the United States was awarded $12,036,554.48 in damages.


This civil action is brought under the False Claims Act based on alleged violations of the Anti-Kickback Statute through a fraud perpetrated on the Medicare program by AZ Diabetic Supply Inc. Before the court is the United States’ motion for default judgment as to AZ Diabetic and Hisham Zaghal. Since the United States filed its motion, counsel has entered an appearance on behalf of Zaghal, and Zaghal has filed an answer to the complaint. Accordingly, the court will deny the motion as to Zaghal.

Procedural requirements

The court has subject matter jurisdiction over plaintiff’s claims pursuant to 28 U.S.C. § 1345. Additionally, the court has subject matter jurisdiction over plaintiff’s False Claims Act claim under 28 U.S.C. § 1331, and plaintiff’s unjust enrichment and payment by mistake claims under 28 U.S.C. § 1367(a).

Because the complaint alleges that the acts proscribed by the False Claims Act occurred in the Eastern District of Virginia, and that AZ Diabetic “can be found in, reside[s], and/or ha[s] transacted business within” this district, it has established that the court has personal jurisdiction over AZ Diabetic. Moreover, defendant should “reasonably anticipate being haled to court” in the Eastern District of Virginia as it conducted business within the district, including the prohibited acts under the False Claims Act, and it maintains its home office within this district.

Additionally, venue is proper in the Eastern District of Virginia pursuant to 28 U.S.C. § 1391(b)(1) because AZ Diabetic is subject to personal jurisdiction in the Eastern District of Virginia. As indicated by the returned proof of service, process server Mark Simons served AZ Diabetic through Zaghal as a registered agent on Sept. 13, 2022.


The plaintiff has alleged sufficient facts to establish that AZ Diabetic, a Medicare-enrolled provider entitled to receive reimbursements from the program, purchased 923 prescriptions from RealTime and LPI, used these prescriptions to purchase durable medical equipment for patients and then received Medicare reimbursement for these purchases. Because AZ Diabetic paid “renumeration[s]” to RealTime and LPI to induce them “to refer an individual … for the furnishing” of an “item or service for which payment” could be made under Medicare, the well-pleaded facts in the complaint establish that AZ Diabetic violated the Anti-Kickback Statute.

As to the scienter element, the complaint alleges sufficient facts to establish that AZ Diabetic possessed the requisite knowledge that its Medicare claims violated the Anti-Kickback statute. The element of materiality is satisfied as the Fourth Circuit has concluded that, because a violation of the Anti-Kickback Statute “automatically constitutes a false claim under the False Claims Act,” a plaintiff need not also show that the claims are material.

Lastly, the United States has also submitted sufficient uncontested evidence to establish that Medicare paid AZ Diabetic $612,329.16 in reimbursement for claims based on prescriptions involving illegal kickbacks. Accordingly, plaintiff has sufficiently established that AZ Diabetic perpetrated a scheme that constituted a knowing violation of the False Claims Act.


A defendant found liable of knowingly violating the False Claims Act will be liable for “3 times the amount of damages which the Government sustains” and “a civil penalty of not less than $5,000 and not more than $10,000, as adjusted by the Federal Civil Penalties Inflation Adjustment Act of 1990.”

Plaintiff has established that AZ Diabetic received $612,329.16 in reimbursements from Medicare for claims that violated the False Claims Act. Accordingly, plaintiff is entitled to trebled damages in the amount of $1,836,987.48.

The court additionally finds an award of the minimum penalty for each of the 923 claims to be sufficient to effectuate the purposes of the False Claims Act’s civil penalties provision. In total, this entitles the United States to $10,199,567 in civil penalties, and, when combined with the trebled damages, the United States is entitled to a total award of $12,036,554.48 in damages.

Plaintiff’s motion for default judgment granted in part, denied in part.

United States of America v. AZ Diabetic Supply Inc., Case No. 1:22-cv-965, May 25, 2023. EDVA at Alexandria (Brinkema). VLW 023-3-282. 12 pp.

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