Whistleblower Lawyer Blog

We have been working with the IRS to bring information about large tax cheating to the IRS's attention, so that clients can participate in the new IRS Whistleblower rewards. The IRS officials sound excited to have this new tool at their disposal, and we are happy to help our whistleblower clients obtain the new rewards. Our latest one deals with fraud in the Hurricane Katrina relief effort, where the public and government have been cheated out of what appears to be many millions of dollars.

We find it especially exciting when a qui tam whistleblower client also has information that qualifies the client to participate in the new IRS whistleblower rewards. This new IRS law enacted in late December 2006 provides for rewards to the whistleblower of 15 to 30% of the government's recovery of taxes, interest, and penalties when income has been under-reported or underpaid.

You might be interested to know that the new IRS whistleblower program is different than the qui tam provisions of the False Claims Act, the main tool the government has had to date for combating fraud. The IRS whistleblower program permits payments of up to 10% of the government's recovery, even when the whistleblower is not an "original source" of the information.

We are excited to offer this service to our whistleblower clients and potential clients. We already feel like we have a "leg up" in helping clients because, as former federal prosecutors, we use that experience to advise our whistleblower clients on criminal law issues. After all, many times our clients have been uncomfortably close to the fraud they are reporting. Now, we can offer this third area of experience-the IRS whistleblower rewards program.

We think the increase in rewards to IRS whistleblowers is an excellent change in the law, which we will use to benefit our clients.

We all remember how Hurricane Katrina and Hurricane Rita left the Gulf Coast devastated. As government agencies began to provide disaster relief with public dollars, dishonest contractors saw a huge opportunity for fraud against the government. Too many FEMA contracts have been the targets of dishonest contractors.

The "watchdogs" of the federal government agencies--the various Inspectors General of the many agencies involved in Katrina relief--have combined their efforts and sent hundreds of auditors to the Gulf region to examine fraud and mismanagement of Katrina contracts. The Inspectors General website on Hurricane Katrina fraud describes these efforts.

We learn more about Hurricane Katrina fraud each time we are contacted by a potential whistleblower client who has something new to report. Many whistleblowers have acted to help the government stop this fraud by filing qui tam lawsuits under the False Claims Act, which can provide the whistleblower a share of the government's recovery of money damages and penalties, as well as attorney's fees and expenses.

We hear from many lawyers and clients that they are not aware of the new IRS Whistleblower Rewards Program. The new provisions took effect on December 20, 2006, and yet so far they are locate on the web.

We hope it is helpful to you to find the new IRS Whistleblower Rewards amendments here, in the amended version of the statute:

26 U.S.C. § 7623.

(a) In general.--The Secretary, under regulations prescribed by the Secretary, is authorized to pay such sums as he deems necessary for--

(1) detecting underpayments of tax, or

(2) detecting and bringing to trial and punishment persons guilty of violating the internal revenue laws or conniving at the same,

in cases where such expenses are not otherwise provided for by law. Any amount payable under the preceding sentence shall be paid from the proceeds of amounts collected by reason of the information provided, and any amount so collected shall be available for such payments.

Continue reading "New IRS Whistleblower Rewards Statute" »

I looked into the experiences that states have had with their own False Claims Acts, because almost every state is considering passing its own. I have tried to provide a brief summary that I hope is useful to you.

To encourage states to enact their own False Claims statutes with qui tam whistleblower provisions that are at least as effective as the federal Act, Congress created a large financial incentive when it passed the Deficit Reduction Act of 2005. States that have or enact such acts become eligible as of January 1, 2007, for a 10% increase in the state's share of Medicaid fraud recoveries.

Many states, therefore, will consider whether to follow suit by enacting their own False Claims Act as early as 2007. Thus, it is important to consider other states' experiences with their own state statutes governing false claims.

Most qui tam cases filed under the state statutes have been related to health care. Many are "global" Medicaid cases that were first developed in federal courts as Medicare and Medicaid fraud cases and that concerned a nationwide fraud which had been investigated by multiple federal and state jurisdictions.

Texas recovered $45.5 million in 2004 from pharmaceutical companies based on their allegedly overstating the price of prescription brand-name and generic-brand drugs. The Texas Attorney General stated that neither the lawsuit nor the settlement would have been possible had the state not enacted a qui tam provision.

Continue reading "Why States Are Passing Their Own Qui Tam Whistleblower Laws" »

Finch McCranie, LLP has recently learned that many state government officials, including Governor Perdue of Georgia, have received a proposed State False Claims Act for consideration to be enacted in 2007. Even though the Bill has been drafted and is on his desk, at present, the Bill has not been submitted to the Legislature for consideration. Obviously, this raises a serious question as to why it is that the Governor is delaying action on this important piece of legislation.

Section 1909 of the Deficit Reduction Act of 2005 creates a financial incentive for states to enact legislation that establishes liability to the state for individuals or entities that submit false or fraudulent claims to a state Medicaid program. This incentive takes the form of an increase in the state’s share of any amounts recovered from a state action brought under a “qualifying law.” In order for a state to qualify for this incentive, the state law must meet certain enumerated requirements as determined by the Inspector General of the Department of Health and Human Services in consultation with the Attorney General. The Office of Inspector General has already ruled in several different cases that certain states have not enacted “qualified laws” and therefore do not qualify for the increase share of fraud recoveries which can amount to a ten (10%) percent increase over amounts currently being received by the states. Thus, if the Governor is to act, it is imperative that he submit a “qualified law” to the Legislature for its consideration. In essence, a “qualified law” is one that is as strong and effective in its qui tam whistleblower provisions, and other features, as the Federal False Claims Act.

As we see it, there is no good reason for the Governor not to submit this proposed legislation for consideration. If he is to do so, however, he should first submit the proposed legislation to the Office of Inspector General as the Office of Inspector General will advise the State whether it “qualifies” for the increased share of fraud recoveries. Indeed, the OIG is required to consider whether the state law is, at least, as effective in rewarding and facilitating Qui Tam actions when compared to the provisions of the Federal False Claims Act. In order to request a OIG review of the state law, the Governor should submit a complete copy of the proposed legislation to the Office of Inspector General Department of Health and Human Services, Cohen Building, Mail Stop 5527, 330 Independence Avenue, S. W., Washington, DC 20201, Attn: Roderick Chen, Office of Counsel to the Inspector General.

Continue reading "Will Your State Have a State False Claims Act?" »

In our multi-part explanation of the federal False Claims Act previously posted, we have summarized the most recent verdicts and settlements of qui tam whistleblower cases (as of December 2006).

We will continue to update you on additional verdicts and settlements of significance.

We have tried to explain what readers may want to know about how the whistleblower statute works, in our article explaining the False Claims Act. Here is the current language of this law that creates rewards for qui tam whistleblowers:

FALSE CLAIMS ACT

TITLE 31. MONEY AND FINANCE
SUBTITLE III. FINANCIAL MANAGEMENT
CHAPTER 37. CLAIMS
SUBCHAPTER III. CLAIMS AGAINST THE UNITED STATES GOVERNMENT

3729. False claims

(a) Liability for certain acts. Any person who--

(1) knowingly presents, or causes to be presented, to an officer or employee of the United States Government or a member of the Armed Forces of the United States a false or fraudulent claim for payment or approval;

(2) knowingly makes, uses, or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the Government;

(3) conspires to defraud the Government by getting a false or fraudulent claim allowed or paid;

Continue reading "The Whistleblower Statute: The Text of the False Claims Act " »

The International Federation of Pharmaceutical Manufacturers and Associations revised its Code of Ethics on January 1 of this year for the first time in a decade. Under the newly revised Code of Ethics, members of the trade group which represents pharmaceutical companies worldwide may no longer provide “expensive gifts” or paid trips to physicians. While the code allows members to provide physicians with gifts that are related to prescription drugs that are inexpensive such as pens, paperweights, stethoscopes and other de mini’s gifts, the new ethics code prohibits members from providing physicians with money or expensive gifts such as trips to resorts or expensive luxury hotels. The revised ethics code addresses something that has been known for years: expensive gifts and payments to doctors might affect prescription drug selections. Indeed, to the skeptic it would appear that many of the marketing efforts of the pharmaceutical industry have been specifically directed at influencing drug selections by providing extravagant gifts for doctors. While it remains to be seen whether the revised Code of Ethics will work, since obviously it is a voluntary undertaking, nonetheless, we applaud the International Federation for taking this step. Obviously, the suspicion lingers that the amounts of money at issue are so great that the ethics code may be ignored by drug representatives in the field trying to increase sales. Nonetheless, this is a good start for the New Year.

In February, 2006, President Bush signed into law the Deficit Reduction Act of 2005 (DRA). An obscure provision within this Act mandates that entities receiving greater than $5 million per year in Medicaid payments must educate their employees about “whistleblower” claims under the Federal False Claims Act. Under the DRA, effective January 1, 2007, as a requirement of continued eligibility for the receipt of Medicaid payments, any entity receiving annual payments of $5 million or more in Medicaid funds must have mandatory compliance and education programs in place for its employees to provide detailed information about the Federal False Claims Act. This education must include information provided to employees about administrative remedies, state laws pertaining to civil or criminal penalties, whistleblower protections, and the role of such laws in preventing and detecting fraud, waste, and abuse in federally funded healthcare programs.
Congress has clearly recognized that the government has a strong need to contain costs through increased fraud and abuse enforcement. Medicaid spending, like Medicare spending, is exponentially increasing. Medicaid enrollment increased from ten (10) million beneficiaries in 1967 to over 44.7 million beneficiaries in 2006 according to statistics published by the United States Department of Health and Human Services. Along with this increase in beneficiaries, Medicaid expenditures have also dramatically increased. In fiscal year 2005 Medicaid expenditures approximated twenty percent (20%) of total federal outlays.

The Centers for Medicare and Medicaid Services (CMS) in its fiscal year report for 2005 documented that $484.3 billion had been spent in the fiscal year 2005. Given this staggering amount of money, and because the percentage of the total federal outlay was expected to exceed twenty percent (20%) of the total federal budget, Congress enacted the mandatory employee education provisions about false claims recovery to encourage whistleblower lawsuits and, hopefully, thereby decrease fraud and abuse.

In addition to providing written policies for all employees, the mandatory policies and compliance programs must include detailed provisions regarding the employer’s policies and procedures for detecting and preventing fraud, waste and abuse. The written policies must include a specific discussion of federal and applicable state False Claims Acts, and the rights of employees to be protected from retaliation as whistleblowers. Ironically, as of the effective date of this provision, there is no state False Claims Act in Georgia. This is very discouraging. Nonetheless, this too may change depending upon the actions of the Georgia Legislature when it meets in 2007.

Section 6031 of the Deficit Reduction Act encouraged the enactment of state False Claims Acts by providing financial incentives for states to enact laws dealing with false or fraudulent claims (specifically including Medicaid claims) that parallel the federal False Claims Act. All states that enact state False Claims Acts are eligible for a ten percent (10%) increase in their share of Medicaid fraud recoveries. Many states have already availed themselves of this opportunity to participate in an increase share of Medicaid fraud recoveries but Georgia has yet to pass such legislation. Whether it will do so, of course, depends upon Governor Perdue and the Republican controlled State House and Senate.

Continue reading "New Compliance and Education Reforms Take Effect" »

We are excited that, in December 2006, Congress dramatically increased the "rewards" to whistleblowers under the IRS Whistleblower rewards program. Whistleblowers now can receive up to 30% of the taxes, interest, and penalties that the IRS recovers based on information furnished by a whistleblower in large tax cases.

For years, the Internal Revenue Service has been authorized to pay informants reporting tax fraud a percentage of any back due taxes collected. Usually the maximum percentage was approximately fifteen (15%) percent of the back tax recovered.

The new whistleblower reform provisions passed by Congress have changed this maximum, and now allow the Internal Revenue Service to consider not only the back tax amount, but also interest and penalties. Given the amounts of money involved, and depending on the passage of time, the fines, penalties and interest in addition to the tax could be significant.

Moreover, the law changes the amount that goes to the informant from a fifteen (15%) percent cap to a thirty (30%) percent cap of all collected proceeds which again includes penalties, interest and the back tax. The new provisions also allow an above-the-line deduction for attorney’s fees and cost paid by and on behalf of the individual in connection with any award for providing information regarding violations of the tax laws. The Internal Revenue Service must now create a Whistleblower Office within the IRS to administer the mandatory reward program.

Congress will require a yearly report to the Secretary of Treasury regarding the effectiveness of any reward program implemented by the IRS. Congress estimates that these new provisions will raise $33 million over the next five years which is but a small fraction of the under reported income in the United States each year. Nonetheless, it is an improvement over existing procedures.

Continue reading "Tax Whistleblower Rewards Increase" »

The Federal False Claims Act has been recognized as the government’s most effective tool for combating fraud and waste in government programs. According to the Justice Department, false claims act recoveries for the fiscal year 2006 exceeded 3 billion dollars. Unfortunately, the whistleblower reward program utilized by the Internal Revenue Service can hardly be characterized as being so successful. Since new IRS reward reform measures were enacted by Congress, we have been giving thought to the crucial question of whether the IRS will be successful in implementing its new informant reward program. Statistics available from the IRS are hardly encouraging. Between fiscal year 2001 and 2005, a paltry $27.3 million was paid by the Internal Revenue Service to informants as rewards. The average individual reward was around $24,000.00. When we compare this to the results achieved under the Federal False Claims Act, obviously, the disparity in results is staggering which is probably why it is that Congress recently acted to encourage the Internal Revenue Service to reform its whistleblower program. The real question is whether the Internal Revenue Service is up to the job and whether it will learn lessons from the success of its other federal agencies in combating taxpayer fraud and abuse.

Continue reading "Will Whistleblower Tax Reforms Produce Results?" »

According to the Congressional Research Service, the United States has spent to date over $437 billion on the Iraq War. An additional $100 billion is estimated to be spent this year. While much of the money, obviously, goes for troops, a great deal of these amounts has gone to civilian contractors involved in reconstruction efforts in Iraq. But where has the money gone and who is accounting for its proper use?

According to Senator Patrick Leahy of Vermont, “Eventually we’re going to have a bill for about $1 trillion dollars and people are not going to be able to account for a very, very large part of it.” It is shocking to us that the Justice Department has done so little to address ever increasing reports of contractor fraud and abuse in Iraq. After three and a half (3 ½) years of war, to the best of our knowledge, not a single criminal case has been filed against any large corporation doing work in Iraq. While a few qui tam actions are beginning to emerge publicly, given that the war effort is taking place in a foreign country which obviously creates evidentiary issues, it may be some time before the full extent of contractor fraud and abuse becomes publicly known. Nonetheless, given the amount of no-bid contracts, this proves to be a major problem.

We support any effort to increase criminal penalties for those who exploit the war effort and obviously would encourage greater, not fewer, False Claims Act cases directed at such fraud and abuse. Billions of tax dollars are being spent on the war effort and most agree that billions are probably being lost to contractor waste, fraud and abuse. If contractor fraud continues to go unchecked in Iraq, the Government only invites more fraud. Accordingly, the whistleblower plaintiff’s bar should step up its efforts and utilize where applicable the government’s most effective tool in combating waste fraud and abuse in government programs: the False Claims Act.

The salutary intent of the Deficit Reduction Act was to require that employers educate employees about the Federal False Claims Act and, hopefully, address fraud and abuse by employer entities receiving $5 million dollars or more in federal funds under the Medicaid program. When the Deficit Reduction Act was passed in 2005, a debate emerged about whether the DRA education provisions mandating employee education about the Federal False Claims Act applied directly to healthcare providers and/or whether states receiving Medicaid had to pass implementing legislation to make the provision effective. In December of 2006, the Centers for Medicare and Medicaid Services (CMS) set the record straight. An “entity” includes a government agency, organization, unit, corporation, partnership or other business arrangement (including any Medicaid managed care organization, irrespective of the form of business structural or arrangement by which it exists) whether for profit or not for profit, which receives or makes payments under a state plan approved under Title XIX or under any waiver of such plan, totaling at least $5 million annually. In short, states do not have to implement legislation to make the provision effective and any entity receiving $5 million or more annually in Medicaid benefits must implement the mandatory education provision.

Continue reading "The CMS Clarifies the Mandatory Whistleblower Reforms" »

Just before Christmas I read an article about a case in Texas where a doctor was sentenced to a lengthy prison term for a scheme to defraud Medicare and Medicaid in excess of $25 million. The doctor had been approached by individuals offering to pay him a kickback for supplying Certificates of Medical Necessity (CMN) approving a beneficiary to receive a motorized wheelchair. I have been watching TV and seeing these adds for sometime about scooters for disabled individuals and I was wondering how so many people could be approved by Medicare and Medicaid to receive these products. At least in this one case in Texas, the doctor was being paid money by the suppliers of these motorized wheelchairs to certify that the people needed them.

In the case in Texas, according to the government, the doctor involved not only got a kickback for signing the CMN but told the disabled patient that unless that patient utilized his services for even more fraudulent billing of Medicare and Medicaid claims that he would not sign their CMN and help them get their wheelchairs. According to prosecutors, the supply companies who provided the wheelchairs in many cases provided less expensive scooters to the patients or nothing at all. The cost to the government, over $25 million in claims.

This case is a classic example of where the government’s pocketbook is opened for looting by those who have no compunction to do so. Given the large amounts of money going to this doctor one would think that the government’s computerized system would have picked up that something was amiss. Before the scheme was uncovered, $25 million in taxpayer money was paid out to those involved in the conspiracy to defraud the government. Because of the lack of oversight, these people operated for several years with impunity. While the articles I read did not say how it is that the scheme was finally brought to the attention of the government (I would suspect an informant), at least these people were caught and prosecuted. One would hope that the informant had filed a qui tam action under seal and that he and his attorneys were paid for bring this outrageous fraud to the attention of the government.

This is the final section of my article. It discusses the most significant recent qui tam cases under the False Claims Act (as of December 2006).

B. Recent Significant Recoveries Under the False Claims Act:

1. Health Care Industry

a. Tenet Healthcare Corporation: $900 million

In June 2006, Justice Department announced that Tenet Healthcare Corporation, operator of the Nation’s second largest hospital chain, had agreed to pay the United States more than $900 million for alleged unlawful billing practices.

According to the government, the settlement amount, which was based on the company’s “ability to pay” (a phrase that suggests the government’s calculation of damages was higher), included more than $788 million to resolve claims arising from Tenet’s receipt of excessive “outlier” payments (payments that are intended to be limited to situations involving extraordinarily costly episodes of care, resulting from the hospitals’ inflating their charges substantially in excess of any increase in the costs associated with patient care and billing for services and supplies not provided to patients); more than $47 million to resolve claims that Tenet paid kickbacks to physicians to have Medicare patients referred to its facilities; and that Tenet billed Medicare for services that were ordered or referred by physicians with whom Tenet had an improper financial relationship; and more than $46 million to resolve claims that Tenet engaged in “upcoding.” The Justice Department acknowledged that “several” of the issues arose from lawsuits filed by whistleblowers under the qui tam provisions of the Act.

b. Serona, S.A: $704 million

The Swiss corporation, Serona, S.A., with its U.S. subsidiaries and related entities, agreed to pay $704 million to resolve criminal and civil allegations in October 2005. According to the Justice Department’s announcement, these allegations were in connection with illegal schemes to promote, market, and sell Serostim, an AIDS drug. The civil portion of the settlement was $567 million, and Serona also agreed to pay a $136.9 million criminal fine. This was the third largest health care fraud recovery by the government at the time.

According to the government, Serona knowingly submitted false and fraudulent claims for Serostim that were not eligible for reimbursement because they were for unnecessary and/or for off-label use of Serostim, and because the claims were for prescriptions induced by kickbacks. The investigation began in 2000 because a former Serona Lab’s employee filed a qui tam action, which was followed by other whistleblower suits in other states. This Serona settlement was reportedly the largest civil drug settlement to date.

Continue reading "The Most Significant Recent Qui Tam Whistleblower Cases Under the False Claims Act" »

This is part 4 of my article on the False Claims Act. This part discusses the huge increase in federal dollars recovered in the past few years:

IV. Recent Recoveries and Other Developments In Qui Tam Litigation

A. An Explosion of Federal Dollars Recovered Since 1986, Under the False Claims Act

Over the past 20 years since the modern False Claims Act was established through the 1986 Amendments, the federal government’s recoveries of dollars have grown astronomically. The Department of Justice statistics reprinted in Appendix 2 tell the story:

In 1987, the government’s recoveries in qui tam cases totaled zero, presumably because the 1986 Amendments had just taken effect; and total recoveries under the False Claims Act were just $86 million. The following year, qui tam and other False Claims Act settlements and judgments began a steady climb upward, exceeding $200 million by 1989, and $300 million by 1991. By 1994, the government’s recoveries broke the $1 billion mark for the first time, with $380 million of that amount attributable to qui tam case recoveries alone.51

In 2000, the government recovered more than $1.5 billion, of which $1.2 billion was derived from qui tam actions. In 2001, the government recovered more than $1.7 billion, with almost $1.2 billion of that amount from qui tam cases. With the exception of 2004, in each year since 2000 the government has recovered more than a billion dollars per year under the False Claims Act, and qui tam actions were responsible for the lion’s share of those recoveries. For example, in 2003, government recoveries exceeded $2.2 billion, of which $1.4 billion derived from qui tam cases. Similarly, in 2005, of the government’s total recovery of $1.4 billion, $1.1 billion of that amount derived from qui tam cases.

Continue reading "The Growing Importance of the Qui Tam Whistleblower Cases Under the False Claims Act" »

This is part 3 of my article on how the False Claims Act works:

III. Brief Overview of How the Modern False Claims Act Works

A. Conduct Prohibited

The federal False Claims Act imposes civil liability under several different theories:

First, the Act makes liable any person who knowingly presents, or causes to be presented, a “false or fraudulent claim for payment or approval” to the federal government.27 “Claim” is broadly defined to include not only submissions made directly to the federal government, but also “any request or demand . . . for money or property” made to a “contractor, grantee, or other recipient” if the federal government provides any portion of the money or property in question.28

Second, the Act creates liability for using a “false record or statement” to obtain payment of a false claim. It imposes liability on any person who “knowingly makes, uses, or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the government.”29

Third, the False Claims Act imposes liability under a “conspiracy” provision. Any person who “conspires to defraud the Government by getting a false or fraudulent claim allowed or paid” is also liable under the Act.30

Fourth, since the government also can be defrauded when a private entity underpays or avoids paying an obligation to the government, the modern Act contains what is known as a “reverse false claim” provision. It creates liability for any person who “knowingly makes, uses, or causes to be made or used, a false record or statement to conceal, avoid, or decrease an obligation to pay or transmit money or property to the Government.”31 For example, a company that is obligated to pay royalties to the government under an oil lease can be held liable if it uses false records or statements to pay less than what it owes.

Continue reading "How the Modern False Claims Act Works in Qui Tam Whistleblower Cases" »