LifeTechniques: Pillbox Grants Paid for Plastic Surgery

The LifeTechniques grant fraud case produced a $4,506,267 civil judgment under a settlement in which the company, Care Team Solutions LLC and their owner acknowledged false statements about National Institutes of Health electronic-pillbox grants. The money was supposed to develop devices for patients. The Justice Department said their owner spent it on personal expenses and business promotion while the companies reported that it had gone toward the grant work.

The Justice Department’s July 13, 2016 announcement described a case against a Lexington owner and her medical-device companies. The National Institutes of Health had awarded them five Small Business Innovation Research grants for electronic pillboxes customized for specific patient populations, including HIV and pediatric patients. The settlement resolved allegations of grant fraud over eight years. The false statements reached from the applications seeking the money to the reports accounting for its use.

How the NIH Grant Fraud Worked

The companies admitted making false statements about their personnel, facilities and accounting systems in their grant applications. Those statements concerned the business the agency was being asked to fund: the people available to do the work, the facilities behind it and the systems for accounting for federal money.

The Justice Department said false applications secured grants the companies were not entitled to receive, depriving qualified small businesses of those funds. A competing developer could lose the funding opportunity before any grant money was spent.

In the settlement, the owner and companies also acknowledged that their grant reports falsely stated the money had been spent for the grants’ purposes and in compliance with the grant rules.

According to the Justice Department, money intended for patients’ pillboxes paid for the owner’s plastic surgery, jewelry, home renovations and massages. The agency also described marketing and promotion of the owner’s businesses, expenses the grant rules did not allow. An expense could serve the company and still divert money from the work the National Institutes of Health had agreed to support.

The Ledgers Behind the Reports

The government’s complaint alleged that the owner falsified entries in the companies’ accounting ledgers to conceal misspending from National Institutes of Health auditors.

An auditor reading a grant report would see the company’s statement about how federal money had been used. An employee familiar with the underlying expenses could see a different story. The useful connection is between a particular expense, its treatment in the books and the account of spending sent to the funding agency.

Electronic-Pillbox Development Was the Funded Work

The grants supported development of electronic pillboxes adapted to particular patients. The National Institutes of Health was funding work on a health care product, with grant applications describing the resources behind that work and grant reports describing how the money was used. The federal payment decision here was the decision to fund development.

The distinction between development and promotion is familiar in device-industry accounts, which separate research and development from selling, marketing and administrative expenses. In this case, the Justice Department said the owner used development-grant money for business promotion that the grant rules did not permit.

The grant’s stated purpose, the company’s spending and its reports to the funding agency have to tell the same story. In LifeTechniques, the owner and companies admitted that the reports did not.

The Civil Judgment and Its Payment Terms

The civil judgment formed part of a settlement resolving False Claims Act allegations. The settlement terms described by the Justice Department gave the owner one year to sell her real properties and required payment of 80% of the net sale proceeds to the government. They also required payment of 70% of her businesses’ net profit for four years.

Those payments were to go toward satisfying the judgment.

The Owner’s False Expense Certification

A related criminal case concerned National Institutes of Health medical-device development grants awarded to Telehealth Holdings, LLC, a company owned by the LifeTechniques owner’s partner. In its February 10, 2016 account of the guilty pleas, the Justice Department reported that she had pleaded guilty to making a false claim to the United States.

The guilty-plea announcement described court documents showing that she certified $222,037 in expenses on Telehealth’s behalf relating to two grants and falsely certified that the funds had been spent according to grant rules.

The separate civil False Claims Act case against Telehealth and its owner is covered on our Telehealth Holdings page.

What Evidence Is Needed to Prove Fraud?

In this grant scheme, inside knowledge of the applications and the books exposes the gap between the promised work and the spending. Our whistleblower experts help connect that knowledge to a case.

A 2020 analysis of healthcare fraud in the Journal of Forensic and Investigative Accounting explains why inside knowledge matters:

Knowing that money was misspent and knowing how the company described that spending to the National Institutes of Health are different pieces of the case. A person who understands the work or the books can explain what a finished grant report conceals.

That is where our whistleblower experts work with you: connecting your knowledge of the project to the statements and spending behind the federal payment. A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers.

You Know What the Grant Actually Funded

If you worked on the project or its accounts and saw NIH reports disguising how grant money was spent, speak to one of our Whistleblower Experts. We build your federal grant-fraud case with you, bring in whistleblower lawyers who understand research funding and stay beside you throughout the case.