The U.S. Justice Department has decided to join a whistleblower action alleging Medicare fraud against a network of companies, including McKesson Corp. McKesson, a drug wholesaler, is a leading supplier of medical equipment, such as feeding-assistance mechanisms and oxygen supplies. The suit claims that McKesson and other corporations worked together to make false claims for payment by Medicare, pay illegal kickbacks and set up phony medical-equipment suppliers. As part of the complicated scheme, McKesson’s subsidiary—McKesson Medical-Surgical MediNet Inc.—created a bogus medical equipment supplier, CSMS, that appeared to service a group of nursing facilities run by Beverly Enterprises Inc. (now called Golden Living). In reality, MediNet supplied Beverly with its medical supplies. But the phony supplier, CSMS, would bill Medicare for the products used by Beverly and Beverly then pocketed the Medicare payments received by CSMS. The ill-gotten Medicare payments were to compensate Beverly, in turn, for referring sales to McKesson.

The original suit was brought in Mississippi federal court. The case was filed by a private citizen under the False Claims Act, whose Qui Tam provision permits private individuals to bring claims on the government’s behalf to recover for fraud against the government by its contractors. As an incentive to encourage such suits, the whistleblower shares in any money recovered.

For the full story, go to the Wall Street Journal.