Whistleblower Lawyer Blog

Once again displaying the effectiveness of the False Claims Act in combating government fraud, the Justice Department has announced that it recovered $2 billion in fraud cases in the latest fiscal year that ended September 30, 2007. Qui tam whistleblower cases under the False Claims Act accounted for at least $1.45 billion of those recoveries, with the whistleblowers (or "relators') sharing in those recoveries.

In all but one year since 2000, False Claims Act cases have generated at least $1 billion in recoveries, with whistleblowers responsible for cases that produced most of those judgments and settlements.

Health care fraud cases involving Medicare, Medicaid, and other government programs once again generated the most dollars--$1.54 billion, more than 75% of the total recoveries.

Pharmaceutical companies paid the lion's share of the health care fraud recoveries. The government's settlements with Bristol-Myers Squibb Co., Aventis Pharmaceuticals, Inc., Medco Health Solutions, Inc., Purdue Pharma L.P., Purdue Frederick Co., and InterMune, Inc. totalled over $800 million.

The Justice Department has focused on cases of Pharma's “off-label” marketing; kickbacks to physicians, wholesalers, and pharmacies to induce sales of drugs or medical devices; inflating the drug "prices" that federal programs use to reimburse providers, then "marketing the spread” between the federal reimbursement and the provider’s lower cost; and failing to report the drug company’s actual “best price” so as to reduce rebates required to be paid.

In addition to the federal dollars recovered, states recovered an additional $264 million in pharmaceutical fraud cases--demonstrating why state versions of the False Claims Act such as those enacted in 2007 by New York, Georgia, and Oklahoma are such a good idea.

The defense industry once again holds the number two position in government fraud, accounting for more than $48 million.

For an understanding of the False Claims Act, please see our in-depth article explaining the False Claims Act and its increasing importance in combating fraud by rewarding whistleblowers for stepping forward.

Anticipating the new IRS Whistleblower Program regulations that are due by the December 20, 2007 first anniversary of the new IRS Whistleblower Program, the IRS Office of Chief Counsel has just issued a Notice on "Coordination of Section 7623 Whistleblower Claims in the Tax Court."

As discussed extensively on this whistleblower lawyer blog, one of the major features of the new IRS Whistleblower Program is that whistleblowers who meet the program's criteria now have an enforceable right to share in money recovered by the government based on the whistleblower's information submitted. The Tax Court now has jurisdiction to consider appeals of whistleblower rewards.

The Notice on November 1, 2007 from the IRS Office of Chief Counsel, CC-2008-001, provides guidance relating to this new cause of action in the Tax Court, the review of award determinations made by the IRS Whistleblower Office. (See http://www.irs.gov/pub/irs-ccdm/cc-2008-001.pdf.)

This Notice recites that, pending additional procedures being established in the CCDM regarding pleadings, motions and decision documents, if a petitioner raises a section 7623 ("whistleblower reward") issue in a Tax Court case, certain notifications should be given to the Office of Associate Chief Counsel (Procedure & Administration), Branch 7, and the Office of Associate Chief Counsel (General Legal Services), Public Contracts and Technology Law Branch, to discuss how the issue should be "handled and coordinated."

For information provided to the IRS before the effective date of the new Whistleblower Program, December 20, 2006, the IRS has stated that the "old" law applies.

I know from speaking with IRS Whistleblower Office Director Stephen Whitlock this Fall, before and after our presentation together in Washington on the new IRS Whistleblower Program, that the IRS is busy working to complete the new regulations that will govern this first meaningful IRS Whistleblower Program. We look forward to reporting on these developments, and to continuing to work with the IRS in representing whistleblowers with information about significant tax noncompliance and tax fraud.

After all, why should honest citizens continue to pay more, becuse of tax cheating by those who refuse to bear their share of the load?

Continuing this whistleblower lawyer blog's discussions of the IRS's strong interest in hedge funds and private equity firms, there have been several recent public statements and reports about IRS efforts to identify and stop tax fraud and tax noncompliance in these segments of the financial services industry.

Today, suspected tax abuses by hedge funds and private equity managers were the subject of a Tax Notes report, which cites a November 1, 2007 statement by the IRS. That same day, Bloomberg reported that IRS officials have identified seven areas of "interest" to examine for tax violations and abuses:

(1) failing to file or improper filing of tax returns and information returns;

(2) circumventing withholding requirements on cross-border loans;

(3) managers' failing to pay tax on all income they receive;

(4) improperly classifying ordinary income as capital gains;

(5) circumventing tax laws by funds flowing between onshore and offshore entities;

(6) the timing and allocation of incentive payments and other income; and

(7) using improper accounting methods to minimize income.

On the same day, the House Ways and Means Committee voted to approve legislation to treat (and tax) payments to private equity firm partners who perform investment services as ordinary income, rather than as capital gains; and also to tax nonqualified deferred compensation paid by offshore hedge funds to investment managers. The debate continues in Congress about these issues.

With those many honest persons at hedge fund and private equity firms apparently being asked to "look the other way" in the face of such abuses--and perhaps risk exposing themselves to criminal or civil liability by appearing to "go along" with the wrongful acts--the number of "whistleblowers" who take advantage of the confidential procedures of the new IRS Whistleblower Program is increasing.

The new IRS Whistleblower Program will help identify and discourage these abuses, as hedge funds and private equity firms remain a great priority for the IRS. As IRS official Stuart Mann of the IRS Financial Services group emphasized to me when I saw him recently, "Bring your hedge fund whistleblower clients directly to me." These whistleblowers perform an essential public service.

Fraud affecting health care is a frequent topic of our whistleblower lawyer blog. A new report on TRICARE, the U.S. Military's health care system, shows that medical fraud continues, as honest whistleblowers and their lawyers continue the fight against government fraud.

More than 200 "qui tam" whistleblower cases were mentioned in the annual report of the Program Integrity Office of TRICARE, and more than 200 whistleblower cases have been brought each year since 2002.

The Report outlines numerous types of health care fraud, including double billing, upcoding, kickbacks, illegal drug marketing practices, and quality of care violations. The Report notes that TRICARE obtained judgments for $36.7 million for 2006, including a settlement with Tenet Healthcare Corporation for more than $20 million.

The Report encourages service members and their families to pay attention to their EOB's (Explanation of Benefits) as a first line of defense against fraud.

It is galling to us that fraud steals millions of the dollars that our veterans and service men and women need and deserve for their own health care. We applaud the efforts of whistleblowers to report this fraud and recoup these funds, so that they can go to the persons who have served our country.