Whistleblower Lawyer Blog

Smart and effective state Attorneys General have fought fraud against their citizens through encouraging greater use of the country's major whistleblower law, the False Claims Act, and state versions of that law.

Texas AG Greg Abbott, for example, has a staff that has long distinguished itself for recovering millions of stolen taxpayer funds in health care fraud cases, under the leadership of Pat O'Connell and, more recently, Ray Winter.

Following this tradition, Indiana AG Greg Zoeller is urging employees of pharmaceutical companies and heath care entities to help stop health care fraud, and possibly share in the recovery as qui tam whistleblowers under the state and federal False Claims Acts.

While we have discussed in detail how the False Claims Act operates, AG Zoeller's announcement gives a succinct summary. We have reprinted it below, and applaud his efforts.

Continue reading "Indiana Attorney General Invites Qui Tam Whistleblower Cases by Health Care & Pharmaceutical Employees To Stop Health Care Fraud" »

When Pharma manufacturers are targeted by the Department of Justice, qui tam whistleblower cases under the False Claims Act are often the reason.

Now, whistleblowers may also receive rewards for reporting violations of the Foreign Corrupt Practices Act (FCPA), thanks to the new whistleblower provisions of the Wall Street financial reform law. Announcements like Merck's recent SEC filing that it is now the subject an FCPA investigation involving other Pharma companies should become common, as corruption will now be increasingly exposed in a new wave of SEC Whistleblower cases.

The recent 10-Q filing of Merck & Co., Inc. stated in part:

The Company has received letters from the DOJ and the SEC that seek information about activities in a number of countries and reference the Foreign Corrupt Practices Act. The Company is cooperating with the agencies in their requests and believes that this inquiry is part of a broader review of pharmaceutical industry practices in foreign countries.

As we have followed through its development, the Dodd-Frank financial reform law created the new SEC Whistleblower and CFTC Whistleblower programs, which will include FCPA cases.

The FCPA, as we have discussed previously, prohibits bribery of foreign government officials in international business transactions, and false entries in books and records of those companies within the statute. Whistleblowers who assist the SEC recover monetary sanctions in FCPA cases now have an enforceable right to a monetary award of 10-30%.

Pharma's exposure for any bribes and kickbacks abroad are a ripe subject for FCPA enforcement.

Continue reading "Merck and Other Pharma Companies Probed by DOJ and SEC in Foreign Corrupt Practices Act (FCPA) Investigation" »

When whistleblower attorneys bring a qui tam False Claims Act case, the most successful results usually occur when Government counsel and the whistleblower's lawyers (Relator’s counsel) work together in what is known as the “public-private” partnership model.

This approach to qui tam cases allows the government to leverage its limited resources by calling on the resources provided by private attorneys. This is essentially a “joint prosecution effort, ” in which the government counsel and investigators can rely on Relator’s counsel at each stage,

--from the beginning of its investigation,

--to obtaining input for preparation of subpoenas for documentary evidence from the defendants,

--to review of evidence compiled by the government in response to subpoenas,

--to evaluation of the responses and explanations that defendants provide,

--to providing analyses and summaries of evidence rebutting the defendants’ factual arguments,

--to performing research that ultimately will be used by the government to rebut the defendants’ legal arguments,

--to performing damages calculations and marshaling arguments in support,

--to consulting with the government on negotiation strategies and steps to be taken to resolve the matter,

--and, finally, to try the case, or otherwise resolve the case.

The taxpaying members of the public are the beneficiaries of this joint effort, which allows the government both to stop and recover damages for fraud, as well as to make those who steal from taxpayers think twice.

Continue reading "How Whistleblower Lawyers Work Alongside Government Lawyers In Successful Qui Tam Cases Under the False Claims Act" »

As we have written previously, the billions of "bailout" dollars to financial institutions through the TARP program inevitably would result in many fraud cases, including some by TARP whistleblowers.

Today, the SEC announced allegations of TARP fraud and securities fraud of more than $1.5 billion other violations against Lee B. Farkas, through his company Taylor, Bean & Whitaker Mortgage Corp. (TBW).

According to the SEC, Farkas "sold more than $1.5 billion worth of fabricated or impaired mortgage loans and securities to Colonial Bank. Those loans and securities were falsely reported to the investing public as high-quality, liquid assets. Farkas also was responsible for a bogus equity investment that caused Colonial Bank to misrepresent that it had satisfied a prerequisite necessary to qualify for TARP funds. When Colonial Bank's parent company — Colonial BancGroup, Inc. — issued a press release announcing it had obtained preliminary approval to receive $550 million in TARP funds, its stock price jumped 54 percent in the remaining two hours of trading, representing its largest one-day price increase since 1983."

Perhaps the SEC is showing a new attitude after the Madoff debacle. Whistleblowers should soon be able to participate in the new SEC whistleblower program, which is part of the financial reform legislation now being hashed out in conference committee.

The SEC's full release is reprinted below:

Continue reading "TARP Fraud and Other Violations Alleged by SEC Against Chairman of Major Mortgage Lender " »

The health care industry is adjusting to major changes to the nation's major "whistleblower" law, the False Claims Act.

Both in 2009 and 2010, Congress has removed obstacles to whistleblowers' use of this anti-fraud statute to address Medicare and Medicaid fraud, as well as fraud affecting every other federal program. As we have written about previously, the Fraud Enforcement and Recovery Act of 2009 (“FERA”) overruled key judicial decisions that had undermined the the False Claims Act's effectiveness.

This year, the landmark health care bill, the Patient Protection and Affordable Care Act (“PPACA”), limited the FCA's "public disclosure" bar, including by allowing the government to prevent dismissal of cases that it believes should proceed.

At the Health Care Compliance Association's "Fraud and Compliance Forum" on Sept. 26-28, 2010 in Baltimore, Rick Shackelford of King & Spalding, LLP and I will discuss the effects on health care organizations of these 2009 and 2010 changes to the False Claims Act.

Rick is an outstanding defense attorney in these cases, and I look forward to discussing these important changes in the False Claims Act from his perspective as defense counsel for hospitals, pharmacy providers, pharmaceutical and medical device companies, health plans, pharmacy benefits managers, managed care organizations, physician organizations, and other health care organizations; and from my perspective as a former defense counsel who for years has represented "whistleblowers" or relators in health care fraud and other cases under the qui tam (or whistleblower) provisions of the False Claims Act.

Congress is at a crossroads in deciding whether there will be a meaningful SEC Whistleblower Program--for the first time.

At this morning's Offshore Alert conference in Miami, we heard from the SEC Chair's Senior Advisor Stephen Cohen on this subject, as well as insight from IRS Whistleblower Office Director Steve Whitlock on how the IRS Whistleblower Program is now designed to encourage whistleblower claims.

As we have observed previously about the bills that would create an SEC Whistleblower program, past experience shows that an enforceable right to a meaningful reward is essential to cause whistleblowers to come forward.

The SEC apparently resists guaranteeing whistleblowers a minimum percentage of dollars recovered, as evidenced by the House version of the bill that lacks this feature. The SEC’s Steve Cohen explained that the SEC does not wish to commit funds that might otherwise go to harmed investors. He nonetheless contended that the SEC’s proposal may be better for whistleblowers because it pays from a special fund designated for this purpose, based on sanctions imposed, not collected.

Compare the experiences of the Justice Department and the IRS, however. When each had whistleblower statutes that provided no meaningful right to a reward, whistleblower claims were small and few. We have written extensively about the dramatic successes of the False Claims Act since its rewards increased to meaningful levels in 1986.

Likewise, IRS Whistleblower Office Director Steve Whitlock described again today how large whistleblower claims have exploded since December 2006, when Congress doubled rewards to whistleblowers to 15-30%, and created an enforceable right to those rewards.

History proves that most whistleblowers simply will remain silent, without a right to meaningful rewards. The SEC will be dividing a small pie unless Congress again embraces this principle.

To protect investors, those with information about fraud must have every incentive to speak up--as early as possible--and to be heard. The Madoff debacle proved that point.

In our experience in representing whistleblowers in the financial industry, the Senate’s version of the SEC whistleblower changes is highly preferable. It creates a right to awards of 10-30%.

There are still glaring deficiencies, such as the provisions excluding auditors who have tried unsuccessfully to call attention to fraud within the organizations and auditing firms involved. It will be an interesting next few weeks as Congress debates the final result.

Continue reading "Should SEC Whistleblowers Have Right to Share in Recoveries That They Cause?" »

Senator Chuck Grassley is making sure that the States take advantage of important, recent improvements to the federal False Claims Act--with the help of financial incentives. In doing so, Grassley highlighted a defect in Oklahoma's False Claims Act that should disqualify any state with a similar defect from these financial incentives.

As we have discussed at length, in the Deficit Reduction Act of 2005, Congress recognized how effective the False Claims has been in recovering money for fraud against the government, by creating financial incentives for states that enact equally effective versions of the federal False Claims Act.

"Weaker" state versions of the False Claims Act do not qualify for the incentives, however. The Inspector General for the Department of Health and Human Services must approve a state's False Claims Act before the incentives are available. So far, the IG has approved fourteen state FCAs, while disapproving six other state acts.

Since then, Congress has closed loopholes in the False Claims Act exploited by those who steal taxpayer funds. The 2009 Fraud Enforcement Recovery Act made significant improvements to strengthen the nation's major whistleblower law, as we have summarized before. In March 2010, Congress modified the False Claims Act's "public disclosure" and "original source" provisions as part of the major health care overhaul, the Patient Protection and Affordable Care Act.

This week, Grassley asked the Inspector General and Attorney General to review existing state False Claims Acts to ensure that they comply with these recent improvements to the federal False Claims Act.

“Updated information will help states fine tune existing state laws and state-level proposals, in order to be eligible for the federal incentive and beef up fraud-fighting efforts,” Grassley said. “This kind of effort at the state and federal level is more important than ever as Medicaid programs are expanded and face new burdens and growing fiscal challenges. Every dollar lost to fraud is one less dollar for those who depend on the program and harms the sustainability of the Medicaid program.”

Continue reading "State False Claims Acts Must Be Updated to Include New False Claims Act Changes, Grassley Warns" »

The major new "health care" law that the President signed this week, the Patient Protection and Affordable Care Act (Public Law 111-148), includes increased efforts to combat health care fraud and abuse, especially fraud in the Medicare and Medicaid programs.

It was significant that, on the very same day that this law took effect, an outstanding group of government prosecutors and investigators brought to an efficient conclusion a $12 million recovery of funds in a qui tam whistleblower case alleging health care fraud in violation of the False Claims Act. The case was brought by our firm, Finch McCranie, LLP, the Simpson Firm, LLC, and James G. Gustino, P.A..

The next day, after a meeting in Washington with the Department of Justice on another False Claims Act case, I sat in on the Senate debate of amendments to the new health care law. Whatever differing views may exist about many of the new law's provisions, all taxpayers agree that stopping fraud in health care is an essential step to preserving scarce health care dollars.

We are proud to have been able to work with an excellent government team of lawyers and investigators in helping recover this $12 million for the American taxpayers. They are Renee Brooker and Eva Gunasekera of the Department of Justice, Ralph Hopkins of the U.S. Attorney’s Office for the Middle District of Florida, and Special Agent Robert Murphy of HHS-OIG.

A description of the case is below:

Melbourne Internal Medicine Associates (MIMA) of Brevard County, Florida, will pay $12 million to resolve a whistleblower lawsuit alleging hidden schemes to defraud Medicare and other federal programs in connection with radiation cancer treatment. This whistleblower case was successfully pursued by Finch McCranie, LLP and Simpson Law Firm, LLC, both of Atlanta.

After investigating the whistleblower’s claims, the U.S. Department of Justice joined the lawsuit and filed its own complaint alleging a sustained fraudulent course of conduct by the MIMA Cancer Center and its former Medical Director, Todd Scarbrough, MD. The government’s complaint contended that MIMA submitted millions of dollars of claims for radiation oncology services that were provided without required physician supervision, were never provided at all or were otherwise improper, and sought to hide the fraud through “sham” practices. The complaint also alleged that executives at MIMA were aware of a substantial number of the fraudulent billing practices.

“Health care fraud is incompatible with patient safety,” said Michael A. Sullivan, attorney with Finch McCranie, LLP, and author of the leading whistleblower blog www.whistleblowerlawyerblog.com. “These doctors were paid for personally supervising radiation treatments for cancer patients, but did not provide the supervision that they gave the appearance of providing. How would patients feel to learn that their doctor’s ‘supervision’ of a potentially dangerous radiation treatment was to set up an ‘autoreply’ to emailed images of the patients, which the doctor would not review at all, or would review too late to make adjustments before patients are irradiated? With growing concerns over how cancer patients can be overexposed to radiation even when physicians are supervising the procedures, how much harm can be caused when physicians fail to provide the personal supervision that they are paid to provide?”

Continue reading "New Health Care Law Arrives With Announcement of $12 Million Recovery in Qui Tam Whistleblower Case Under False Claims Act" »

Among the many 2009 changes to strengthen the False Claims Act is one whose impact is about to be experienced: greater use of "civil investigative demands" to gather evidence.

Civil investigative demands allow to government to require any person believed to have documents or information relevant to a False Claims Act investigation to do the following:

(A) to produce such documentary material for inspection and copying,

(B) to answer in writing written interrogatories with respect to such documentary material or information,

(C) to give oral testimony concerning such documentary material or information, or

(D) to furnish any combination of such material, answers, or testimony. (31 U.S.C. § 3733 (a)).

Until now, civil investigative demands were theoretically available, but seldom used, as they required authorization by the Attorney General. Now, as the 2009 amendments permit, the U.S. Attorney General has just delegated that authority to local U.S. Attorneys.

The result should be far greater use of these valuable investigative tools, which are now more available to the line prosecutors who investigate False Claims Act cases. Although reporting requirements apply, the change gives a leg up to aggressive investigators in gathering evidence.

Another significant 2009 change is that prosecutors are now authorized to share with qui tam relators or whistleblowers the information or documents obtained by CIDs, if they deem it necessary. This change will enhance the important "collaboration" between government counsel, the whistleblower, and the whistleblower's counsel that has proved extremely effective in prosecuting qui tam cases under the False Claims Act.

As time will tell, of all the 2009 amendments, this change may have the greatest impact on False Claims Act investigations. It should allow the government lawyers and investigators who actually work cases to take sworn testimony and require answers to interrogatories and document requests, before suit is commenced.

As if the nation's expenditures to rebuild Iraq were not enough, fraud that steals taxpayer dollars continues to infect the Iraq reconstruction program. This fraud often results in qui tam whistleblower cases under the False Claims Act, which allows those reporting the fraud to receive a a share of the government's recovery of money.

Today's New York Times piece by James Glanz reports on the more than 50 new fraud investigations in the past six months alone in the Iraq reconstruction effort.

The Office of the Special Inspector General for Iraq Reconstruction is responsible for these investigations. "Chaos, weak oversight and wide use of cash payments in the reconstruction program in Iraq allowed many more Americans who took bribes or stole money to get off scot-free," in Mr. Glanz's words.

Fortunately, 2009 changes to strengthen the False Claims Act, the country's primary whistleblower law, will allow whistleblowers reporting fraud to do so more effectively so that they may share in the dollars recovered.

Continue reading "Iraq Reconstruction Fraud Continues to Fuel Investigations by Office of the Special Inspector General for Iraq Reconstruction" »

The Justice Department has just announced that, to protect patients from harm in seven Georgia psychiatric hospitals, its Civil Rights Division has filed for relief including immediate appointment of a monitor to protect those patients.

DOJ cited the threat to patients of "imminent and serious threat of harm to their lives, health and safety."

The seven hospitals include East Central Regional Hospital, Georgia Regional Hospital at Savannah, Georgia Regional Hospital at Atlanta, Southwestern State Hospital, Central State Hospital, West Central Georgia Regional Hospital, and Northwest Georgia Regional Hospital.

The announcement is repinted below:

Continue reading "Georgia Psychiatric Hospitals: Justice Department Suit for Immediate Relief to Protect Patients" »

How does the IRS treat whistleblowers who receive awards under the False Claims Act's "qui tam" provisions, which allow private citizens who expose fraud to share in the government's recovery of money?

The Tax Court this week addressed that question. It held that awards to whistleblowers or "relators" are part of "gross income" and thus are taxable, but that the whistleblower nonetheless may deduct the attorney's fees paid as a miscellaneous itemized deduction.

Thus, no income taxes were owed on that portion of the whistleblower's award that was paid as attorney's fees to the whistleblower's attorney.

This result not only makes sense, but also is consistent with precedent. Since the whistleblower would have had no recovery but for the attorney's efforts, it would be unfair to conclude otherwise.

The case is ALBERT D. CAMPBELL, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, decided January 21, 2010. It is reprinted below:

Continue reading "Taxation of Qui Tam Whistleblower Awards by IRS Addressed by Tax Court " »

Attorneys from across the country will gather tomorrow in Atlanta to discuss health care fraud and the 2009 amendments to the False Claims Act, the nation's primary whistleblower statute.

I am pleased to be on the panel discussing "False Claims Act Developments," moderated by Jack Boese of Fried Frank. This will be a particularly interesting year for this annual meeting, as Congress enacted major changes to the False Claims Act that took effect on May 20, 2009.

In addition, the "Health Care Fraud Enforcement Act" pending in the Senate would enhance further the government's tools used to investigate and remedy Medicare and Medicaid fraud. This bill would remove any question that all payments made pursuant to illegal kickbacks are "false" for purposes of the False Claims Act.

Among the significant 2009 changes to the False Claims Act made by the Fraud Enforcement and Recovery Act are the following:

1. The amendments expanded the definition of "claim," and fraud directed against government contractors, grantees, and other recipients is now plainly covered by the False Claims Act.

2. Funds administered by the United States government (e.g., in Iraq) are now protected.

3. Retaining overpayments of money from the government is now a stated basis of liability, which is a source of concern for health care providers, among others.

4. Liability for "conspiracy" to violate the Act is now broader.

5. Protection of whistleblowers and others against "retaliation" now extends not only to "employees," but also to "contractors" and "agents"; and persons other than "employers" potentially may be liable for retaliation.

6. In investigations, the government now has authority to use "Civil Investigative Demands" more broadly, and to share information more with state and local authorities and with whistleblowers/relators.

7. A standard definition of what is "material" now applies in False Claims Act cases.

8. The statute of limitations has been clarified for when the government asserts its own claims, after the whistleblower (or "relator") has filed a qui tam case under the False Claims Act.

The full agenda for tomorrow's "SOUTHEASTERN HEALTH CARE FRAUD INSTITUTE" is below:

Continue reading "Health Care Fraud Lawyers Gather to Discuss Amendments to False Claims Act and Other Whistleblower Developments" »

Since the Madoff and Stanford schemes proved ruinous to so many investors, many have asked why the SEC has no meaningful "whistleblower" program to expose wrongdoing, a topic we have written about previously.

Perhaps Harry Markopolis' voice is finally being heard, albeit faintly. Last week, the House Financial Services Committee approved legislation that would expand both whistleblower rewards and whistleblower protections, among other things.

Still, past experience with the False Claims Act and the IRS Whistleblower statute shows that the proposed rewards need to be beefed up to be effective.

The “Investor Protection Act of 2009” (excerpted below) also would increase the SEC’s budget and make other changes designed to strengthen enforcement.

The new rewards to whistleblowers would be up to 30% of monetary sanctions of more than $1 million:

"In any judicial or administrative action brought by the Commission under the securities laws that results in monetary sanctions exceeding $1,000,000, the Commission, under regulations prescribed by the Commission and subject to subsection (b), may pay an award or awards not exceeding an amount equal to 30 percent, in total, of the monetary sanctions imposed in the action or related actions to one or more whistleblowers who voluntarily provided original information to the Commission that led to the successful enforcement of the action."

The proposed new whistleblower rewards are reminiscent of those under the new IRS Whistleblower Program, but need at least two corrections to be effective.

First, the current SEC bill creates no enforceable "right" to a reward--a defect that made the old IRS Whistleblower statute ineffective before it was amended in December 2006.

Second, there should be a minimum percentage of perhaps 15% for the SEC rewards; it should not be left at 0-30%, as the bill now reads. Who would risk a 1% (or even lower) reward? The False Claims Act only became effective after 1986 amendments increased rewards to at least 15% in most cases. The new IRS Whistleblower law is attracting whistleblowers left and right because it provides for a minimum of 15% in most instances.

The proposed SEC law has one advantage over the IRS version: The IRS law unfortunately omits protection of whistleblowers from retaliation, but the proposed SEC whistleblower provisions would provide a remedy similar to that furnished whistleblowers under the False Claims Act. Here is what the proposed bill states (in part):

"An employee, contractor, or agent prevailing in any action brought under subparagraph (B) shall be entitled to all relief necessary to make that employee, contractor, or agent whole, including reinstatement with the same seniority status that the employee, contractor, or agent would have had, but for the discrimination, 2 times the amount of back pay, with interest, and compensation for any special damages sustained as a result of the discrimination, including litigation costs, expert witness fees, and reasonable attorneys' fees."

The bill's proposed SEC whistleblower language is below; the entire bill may be found here:

Continue reading "New SEC Whistleblower Rewards and Whistleblower Protections Approved by House Committee--But Improvements Are Needed" »

The battle against those who steal taxpayer dollars through Medicare fraud and other health care fraud took a step forward this week. The Senate is now considering the "Health Care Fraud Enforcement Act," which will enhance the government's tools used to investigate and remedy Medicare and Medicaid fraud.

After a Senate Judiciary Committee hearing Wednesday on “Effective Strategies for Preventing Health Care Fraud,” Senators Leahy, Kaufman, Specter, Kohl, Schumer, and Klobuchar sponsored the new anti-fraud measure.

Excerpts of the Senate announcement follow:

The bill makes straightforward but critical improvements to the federal sentencing guidelines, to health care fraud statutes, and to forfeiture, money laundering, and obstruction statutes, all of which would strengthen prosecutors’ ability to combat this particularly destructive form of fraud. These improvements include:

o Increasing funding: Money spent on health care fraud prevention and enforcement is returned manifold through costs savings and civil and criminal recoveries. This bill authorizes a modest, yet significant, increase in federal antifraud spending of $20,000,000 per year through 2016.

The new bill would add to legislation earlier this year to strengthen law enforcement statutes aimed at fraud, the Fraud Enforcement and Recovery Act.

Of particular importance to qui tam whistleblower cases under the False Claims Act, the nation's major whistleblower law, the new bill removes any ambiguity that "kickbacks" violate the False Claims Act. The official summary discusses kickbacks in section 2(c):

Section 2(c). Kickbacks

All too often, health care providers secure business by paying illegal kickbacks, which needlessly increase health care risks and costs. When a doctor’s independent judgment is compromised by a kickback, the patient faces the risk that the doctor is making decisions that are not in the patient’s best interest. In addition, excessive payments to doctors increase health care costs, may result in unfair competition, and may compromise medical research independence and the standards of scientific integrity.

The Department of Justice has had success both prosecuting illegal kickbacks and pursuing False Claims Act (FCA) matters predicated on underlying violations of the Anti-Kickback Statute (AKS). Nevertheless, defendants in such FCA cases continue to mount legal challenges. A court recently held that, even though a device company may have paid a kickback to a doctor to use a particular medical device, the bill for the procedure to implant the device was not false because the claim was submitted by the innocent hospital, and not by the doctor. United States ex rel. Thomas v. Bailey, 2008 WL 4853630 (E.D. Ark.) (Nov. 6, 2008). In other words, a claim that results from a kickback and that is false when submitted by a wrongdoer is laundered into a "clean" claim when an innocent third party finally submits the claim to the government for payment. This has the effect of insulating both the payor and the recipient of the kickback from FCA liability. This obstacle to a successful FCA action particularly limits Department’s ability to recover from pharmaceutical and device manufacturers, because in such instances the claims arising from the illegal kickbacks typically are not submitted by the physicians that received the kickbacks, but by pharmacies and hospitals that had no knowledge of the underlying unlawful conduct.

This section remedies the problem by amending the AKS to ensure that all claims resulting from illegal kickbacks are false, even when the claims are not submitted directly by the wrongdoers themselves. (Notably, in such circumstances, neither AKS nor FCA liability will lie against an innocent third party that submitted the claim but lacked the requisite intent required under those statutes.)

The full text of the bill is below:

Continue reading "New ‘‘Health Care Fraud Enforcement Act of 2009’’ Includes Health Care Whistleblower Provisions Aimed at Kickbacks" »

With the nation's health care costs growing, a DOJ and HHS initiative to combat health care fraud continues to show progress.

Building on past enforcement efforts, in May 2009 the government announced its Health Care Fraud Prevention and Enforcement Action Team (HEAT), as part of what is now a Cabinet-level battle against Medicare fraud. To date in FY 2009, the Department of Justice has recovered close to one billion dollars in health care fraud cases, and has obtained 300 convictions.

Last week, the government announced that its Medicare Fraud Strike Force has charged twenty California defendants with $26 million in Medicare fraud from the sale of durable medical equipment (DME). That same week, the government charged six Houston area residents with participating in a scheme to submit claims to Medicare for medically unnecessary DME.

DME fraud and abuse are frequently reported in the calls we receive in representing "whistleblowers" under the qui tam provisions of the False Claims Act. The nation's major whistleblower law, the False Claims Act allows private citizens who report fraud or false claims to share in the government's recovery of damages.

Significant changes to the False Claims Act made earlier this year will improve its effectiveness in stopping fraud against taxpayer funds.

Defrauding the government of taxpayer dollars has gotten tougher over the past five months.

Important changes to the nation's primary anti-fraud statute, the False Claims Act, took effect on May 20, 2009, when the Fraud Enforcement and Recovery Act of 2009 became law.

Among the most significant changes, Congress clarified and corrected the False Claims Act by legislatively overruling certain court decisions that sought to limit the scope of the Act, including Allison Engine Co. v. United States ex rel. Sanders, 128 S. Ct. 2123 (2008); United States ex rel. Totten v. Bombardier Corp., 380 F.3d 488 (D.C. Cir. 2004), cert. denied, 544 U.S. 1032 (2005); and United States ex rel. DRC, Inc. v. Custer Battles, LLC, 376 F. Supp. 2d 617 (E.D. Va. 2005), rev'd, 562 F.3d 295 (4th Cir. 2009).

These important 2009 changes to the False Claims Act include the following:

1. The amendments expand the definition of "claim," and fraud directed against government contractors, grantees and other recipients is now plainly covered by the law.

2. Funds administered by the United States government (such as in Iraq) are now protected.

3. Retaining overpayments of money from the government is now an explicit basis of liability, which will be a source of concern for health care providers, among others.

4. Liability for "conspiracy" to violate the Act is broader than before.

5. Protection of whistleblowers and others against "retaliation" now extends not only to "employees," but also to "contractors" and "agents"; and persons other than "employers" potentially may be liable for retaliation.

6. In investigating, the government now has authority to use "Civil Investigative Demands" more broadly, and to share information more with state and local authorities and with whistleblowers/relators.

7. A standard definition of what is "material" now applies in False Claims Act cases.

8. The statute of limitations has been clarified to allow the government to assert its own claims, after the whistleblower (or "relator") has filed a qui tam case under the False Claims Act.

Click here for a detailed discussion of the False Claims Act and the wave of new State False Claims Acts.

The amended False Claims Act is reprinted below, in its entirety:

Continue reading "New False Claims Act Amendments Strengthen Enforcement of Health Care Fraud and Procurement Fraud Laws " »

At the "Advanced Health Law" seminar on October 9, attorneys prosecuting and defending cases of alleged health care fraud will discuss the important new amendments to the False Claims Act. I am honored to be the panelist who will discuss these important new provisions from the perspective of representing whistleblowers (known as "relators") who bring qui tam whistleblower cases under the False Claims Act.

These significant changes to the False Claims Act took effect on May 20, 2009, when the Fraud Enforcement and Recovery Act of 2009 became law. Among the most important changes, Congress corrected and clarified the False Claims Act by legislatively overruling certain court decisions that sought to limit the scope of the Act, including Allison Engine Co. v. United States ex rel. Sanders, 128 S. Ct. 2123 (2008); United States ex rel. Totten v. Bombardier Corp., 380 F.3d 488 (D.C. Cir. 2004), cert. denied, 544 U.S. 1032 (2005); and United States ex rel. DRC, Inc. v. Custer Battles, LLC, 376 F. Supp. 2d 617 (E.D. Va. 2005), rev'd, 562 F.3d 295 (4th Cir. 2009).

The False Claims Act, as amended, now has these provisions:

1. The amendments expand the definition of "claim," and fraud directed against government contractors, grantees and other recipients is now covered by the law.

2. Funds administered by the United States government (such as in Iraq) are now protected.

3. Retaining overpayments of money from the government is now an explicit basis of liability, which will be a source of concern for health care providers, among others.

4. Liability for "conspiracy" to violate the Act is broader than before.

5. Protection of whistleblowers and others against "retaliation" now extends not only to "employees," but also to "contractors" and "agents"; and persons other than "employers" potentially may be held liable for retaliation.

6. In investigating, the government now has authority to use "Civil Investigative Demands" more broadly, and to share information more with state and local authorities and with whistleblowers/relators.

7. A standard definition of what is "material" now applies in False Claims Act cases.

8. The statute of limitations has been clarified to allow the government to assert its own claims.

Health care fraud lawyers on this October 9 panel include government counsel Christopher J. Huber (Assistant U.S. Attorney, Atlanta); defense counsel Richard L. ("Rick") Shackelford (King & Spalding LLP, Atlanta); and this whistleblower lawyer blog author Michael A. Sullivan (Finch McCranie, LLP, Atlanta). Our moderator will be Summer H. Martin (McKenna Long Aldridge LLP, Atlanta). The program will be chaired by Tracy M. Field, Chair, Health Law Section, State Bar of Georgia (Arnall Golden Gregory LLP, Atlanta). I look forward to working with this distinguished group.

These health care attorneys will discuss which aspects of the amendments to the False Claims Act will be most significant to hospitals, physicians, pharmaceutical companies, and others in the health care industry.

It has been interesting to discuss with our colleagues which of the changes are likely to have the greatest impact, not only in health care fraud cases, but in cases involving contractor fraud in the Iraq and Afghanistan wars and reconstruction, other military contracts, NASA programs, Hurricane Katrina and other disaster relief, the new TARP and "Stimulus" programs (the American Recovery and Reinvestment Act), and other federal contracts, which are among the cases clients have brought to our firm.

Outrage over misuse of public funds is a healthy reaction to those who cheat taxpayers. It can also create interesting bedfellows, as newly-introduced legislation in the House demonstrates.

HR 3571, aimed at "de-funding ACORN," would ban federal contracts and most federal funds to any organization that "has filed a fraudulent form with any Federal or State regulatory agency," among other things. (Complete bill is below.)

As. Rep. Alan Grayson (D-FL) observed correctly, fraud by those who receive government funds involves much "bigger fish" than ACORN--and bigger dollar amounts of alleged fraud.

"We can't have a situation where the laws of justice are applied to one organization and not to any of the others, particularly when there are organizations that are polluting water for our soldiers and electrocuting them." Grayson presumably was referring to allegations that KBR's performance of government contracts for our troops has caused soldiers to be electrocuted and otherwise endangered.

Rep. Grayson is on target. He saw these abuses as a lawyer vindicating the public's interest in fighting fraud in pursuing qui tam whistleblower cases under the False Claims Act, the nation's primary civil statute for combating fraud and false claims against the government.

On the other side of the aisle, Rep. Dan Issa (R-CA) appeared to agree with this principle--"abuse and fraud will not be tolerated," as his spokeperson told ABC News.

Battling fraud against taxpayers can and should be a universal concern of both parties. Let's see whether this bill is weakened by those who reap the most rewards from cheating the public. The full text of the proposed legislation is below:

Continue reading "Federal Contractor Fraud Laws To Get Tougher? ACORN Controversy Casts Spotlight on Larger Contractors That Violate False Claims Act" »

Since the Madoff and Stanford scandals, we have written about the calls for the Securities and Exchange Commission (SEC) to establish a meaningful whistleblower rewards program. Currently, no adequate incentives exist for whistleblowers to speak up when they might have a chance to stop large scale fraud and prevent the next Madoff or Stanford debacle. How much better off would so many Americans be if someone had exposed Madoff before he defrauded so many investors?

Forbes has run interesting column by Bill Singer, calling for a statute that apples "False Claims Act" whistleblower remedies to Wall Street. Why not protect investors from the massive losses that so many incurred? The current system obviously failed to do so. Harry Markopolis has described eloquently how the SEC could do so much better, and new SEC whistleblower rewards should make a huge difference.

We are already seeing the successes of another innovative law based on the same idea, the IRS Whistleblower Program. To stop those who would have you and I carry their share of the nation's tax burden, private citizens are stepping forward with better and better information to provide to the IRS about significant tax cheating. The quality of the information that our clients are presenting is compelling, and some of it will help stop major abuses of the tax laws.

Continue reading "Calls Continue for a "False Claims Act" for Wall Street Whistleblowers" »

In one of two prominent whistleblower cases in the news this week, whistleblower John Kopchinski will be awarded more than $50 million for his role in exposing improper "off-label marketing" of the drug Bextra by Pfizer. Other whistleblowers also will be rewarded because of this settlement. That settlement of $2.3 billion is the largest in history ($1 billion to settle False Claims Act allegations, and $1.3 billion in criminal fine and forfeiture).

As large as the Pfizer settlement is, the other whistleblower's actions seem likely to lead to recovery of dollars that could dwarf this $2.3 billion settlement. UBS whistleblower Bradley Birkenfeld has lifted the shroud of secrecy from thousands of American taxpayers' offshore accounts at UBS. He has given the IRS a foothold into recovering potentially many billions in unpaid taxes owed.

Yet Birkenfeld was recently sentenced to serve 40 months in federal prison for conspiracy to defraud the United States in a tax fraud scheme while at UBS. His conviction also calls into question his ability to receive a reward under the IRS Whistleblower Program from the billions to be collected by the IRS.

How could this happen?

There are tried and true steps lawyers representing whistleblowers must take to protect their clients from the risk of prosecution. This was one of the topics of the "IRS Whistleblower Boot Camp" panel discussion that I led this past March, with panelists including IRS Whistleblower Office Director Steve Whitlock--how to protect the whistleblower who has potential criminal liability, but who has valuable information.

If adequate protection cannot be obtained, often the whistleblower with real criminal exposure should choose not to go forward. If the information is important enough to the government, however, protection for the whistleblower often can be negotiated, so long as the whistleblower is truthful and forthcoming. As former federal prosecutors who have also defended clients in white collar criminal prosecutions, we have represented many clients in obtaining this type of protection.

Continue reading "Protecting Whistleblowers from Criminal Prosecution: The Mystery of the UBS Whistleblower's Prison Sentence" »

We have followed closely the trend of states enacting their own versions of the nation's chief whistleblower law the False Claims Act. North Carolina has become the newest state to enact its own False Claims Act, which is reprinted below.

We congratulate the State of North Carolina on a momentous accomplishment.

Continue reading "Latest State "False Claims Act" Is Enacted in North Carolina" »

For a "webinar" on August 11, 2009, I have been asked to discuss not only potential liability under the False Claims Act for false or fraudulent claims to the federal government, but also what has been called the "Mini-False Claims Act": the "Program Fraud Civil Remedies Act," 31 U.S.C. §§ 3801-12,

Because it is not feasible for the government to handle under the False Claims Act every conceivable case of a false claim in procurement, the PFCRA was enacted so that smaller claims could be handled in an administrative process.

A major provision of the PFCRA, section 3802, is reprinted below:

Chapter 38. Administrative Remedies for False Claims and Statements

shall be subject to, in addition to any other remedy that may be prescribed by law, a civil penalty of not more than $5,000 for each such claim. Except as provided in paragraph (3) of this subsection, such person shall also be subject to an assessment, in lieu of damages sustained by the United States because of such claim, of not more than twice the amount of such claim, or the portion of such claim, which is determined under this chapter to be in violation of the preceding sentence.

Continue reading "The "Program Fraud Civil Remedies Act"--A "Mini-False Claims Act" " »

At the 20th Annual Convention of NELA, the National Employment Lawyers Association, I recently had the pleasure of moderating a panel discussion of some of the country's top "whistleblower" lawyers. The topic was "The Most Pressing Issues in Representing Whistleblowers."

Joining me in this panel discussion were Richard Renner and David J. Marshall. Richard is an attorney with Kohn & Colapinto in Washington, DC. and also serves as Legal Director of the National Whistleblowers Center. David is a partner with Katz, Marshall & Banks, LLP in DC.

The discussion included:

(1) the brand new Amendments to the False Claims Act that became law on May 20, 2009;

(2) "winning" cases and clients;

(3) what documents and other evidence may lawfully be gathered;

(4) protecting clients who may have been forced to participate in unlawful acts, and who therefore may face liability or prosecution themselves; and

(5) presenting cases most effectively to capture the government's interest.

In addition, we discussed the new IRS Whistleblower Program, in this second consecutive year that NELA invited me to participate in its national convention's panel discussion of whistleblower issues. Audience members had many excellent questions during and after the discussion.

After our session, my friend Mark Kleiman led a discussion of whistleblower issues entitled "The California False Claims Act & Other Whistleblower Cases." Joining Mark were J. Bernard Alexander III and Wilmer J. Harris.

Much thanks to NELA's fine Board and Executive Director Teri Chaw in arranging this terrific conference in Rancho Mirage, California.

Today was a monentous day for those who believe in integrity in how taxpayer funds are treated.

President Obama signed into law today the Fraud Enforcement and Recovery Act of 2009, which makes important amendments to the country's most important tool for fighting fraud, the False Claims Act.

Also important today, the Obama administration announced an expansion of DOJ's health-care strike forces, which are designed to combat fraud in Medicare and Medicaid programs. Attorney General Eric H. Holder Jr. and Health and Human Services Secretary Kathleen Sebelius announced the initiative.

The new Fraud Enforcement and Recovery Act of 2009 protects the hundreds of billions being spent on government programs, as we have written about previously.

We will discuss in future posts how the new amendments will affect anti-fraud efforts . We congratulate all taxpayers on having Congress and the President take their interests to heart through these amendments.

Today is an historic day--the House of Representatives has passed the Fraud Enforcement and Recovery Act of 2009 by a vote of 367-59. The Act includes long-needed amendments to the nation's primary anti-fraud law, the False Claims Act, about which we have written often.

The amendments are designed to protect the hundreds of billions in taxpayer funds now being spent from fraud affecting TARP, other "stimulus" measures, Medicare and Medicaid, national defense including the Iraq and Afghanistan wars and reconstruction efforts, and countless other government programs.

The Senate approved the Act by a vote of 92-4 on April 28th. A conference committee now will consider reconciling differences in the versions of the bill.

The new law closes a series of "loopholes" that allowed dishonest contractors to cheat the American public, and is intended to restore the False Claims Act to its original intent.

Our whistleblower lawyer blog has provided previously a detailed explanation of how the False Claims Act works by allowing private citizen "whistleblowers" (also known as qui tam "relators") to report fraud and share in the government's recovery. The False Claims Act also protects whistleblowers from retaliation.

Much will be written about the new amendments, which will greatly strengthen the Act's effectiveness in combating fraud. We congratulate those in Congress with the wisdom to pass the amendments, as well as all involved in this effort!

Continue reading "Major Whistleblower Law Development--False Claims Act Amendments Pass House of Representatives, As Part of the "Fraud Enforcement and Recovery Act of 2009" " »

We have written previously how the "bailout" measures such as TARP--the Troubled Assets Relief Program--and other "stimulus" measures must have effective oversight,disclosure, and anti-fraud provisions to protect those funds from those who look to commit fraud. The speed at which the government has acted to address the faltering economy will only increase the opportunities for fraud. Already, TARP whistleblowers have begun to come forward with reports of misuse of billions in TARP funds.

This week, Neal Barofsky, the Special Inspector General for the Troubled Assets Relief Program reiterated those points in his Quarterly Report to Congress. The IG described TARP as "inherently vulnerable to fraud, waste and abuse, including significant issues relating to conflicts of interest facing fund managers, collusion between participants and vulnerabilities to money laundering."

Barofsky's unit, known in government lingo as "SIGTARP," has opened twenty investigations that include suspected securities fraud, tax law violations, insider trading and mortgage modification fraud. We expect that his staff is working closely with the Internal Revenue Service Criminal Investigation division (“IRS-CI”), the Securities and Exchange Commission (“SEC”), and other government agencies.

The audits being conducted by Barofsky's unit address, among other things, how TARP funds are being used; compliance with executive compensation provisions; Treasury's decisions about funding the first TARP recipients and its decisions relating to Bank of America’s acquisition of Merrill Lynch; AIG and its bonuses; and the AIG counterparties that received TARP funds. These lists will only grow.

According to Barofsky, "You don't need an entirely corrupt institution to pull one of these schemes off," he said. "You only need a few corrupt managers whose compensation may be tied to the performance of these assets in order to effectively pull off collusion or a kickback scheme."

Just since last Fall, the TARP program has grown in "scope, scale, and complexity" from the original program intended to purchase up to $700 billion in “toxic” assets such as troubled mortgages and mortgage-backed securities (“MBS”). Now, TARP funds are going to twelve separate programs and could reach $3 trillion, according to this week's Report.

As a practical matter, we have found that TARP funds are at greater risk of abuse in the absence of clear restrictions on use of the funds. This glaring oversight in how TARP was originally established must be remedied immediately for anti-fraud measures such as the False Claims Act to be effective in protecting the funds. Clear restrictions and limitations on TARP funds would also allow the IRS Whistleblower Program to be used by whistleblowers who report TARP abuse and fraud.

Here is the link to the Quarterly Report to Congress by the Special Inspector General for the Troubled Assets Relief Program. The Executive Summary is reprinted below:

Continue reading "Fraud Against TARP Funds A Real Threat, Warns Special Inspector General for TARP" »

New legislation to combat financial institution fraud, securities fraud, mortgage fraud, and other fraud and abuse is gaining momentum, and brings closer long-needed amendments to restore to its intended strength the nation's major "whistleblower" law, the False Claims Act.

The Fraud Enforcement and Recovery Act of 2009 (S. 386) received support yesterday in a statement from the Administration:

The Administration strongly supports enactment of S. 386. Its provisions would provide Federal investigators and prosecutors with significant new criminal and civil tools and resources that would assist in holding accountable those who have committed financial fraud.

Specifically, the legislative enhancements would help the Department of Justice to combat mortgage fraud, securities and commodities fraud, money laundering and related offenses, and to protect taxpayer money that has been expended on recent economic stimulus and rescue packages. Further, the legislation would amend the False Claims Act (FCA) in several important respects so that the FCA remains a potent and useful weapon against the misuse of taxpayer funds. In general, this legislation would benefit U.S. taxpayers by both addressing existing fraud and deterring waste, fraud, and abuse of public funds. Moreover, S. 386 would provide needed resources to strained law enforcement agencies and prosecutors that would enable the Department and its partners to advance the pace and reach of the enforcement response to the current economic crisis. These additional resources will provide a return on investment through additional fines, penalties, restitution, damages, and forfeitures. With the tools and resources that S. 386 provides, the Department of Justice and others would be better equipped to address the challenges that face this Nation in difficult economic times and to do their part to help the Nation respond to this challenge.

We have written previously about the amendments to restore the False Claims Act to full strength, by clarifying various provisions that led some courts to weaken this important anti-fraud law.

The abuses now being exposed in the financial industry join the list of many other types of fraud designed to steal taxpayer funds--health care fraud,defense procurement fraud (especially in Iraq and Afghanistan), Hurricane Katrina fraud, and many other species of fraud and false claims.

With hundreds on billions of new federal spending underway in the TARP program and other "bailout" and "stimulus" efforts, the need is urgent to protect these funds with the most effective anti-fraud measures. That protection begins with the amendments to the False Claims Act, and we applaud this bipartisan effort to restore that critical law to its original intent.

In a major victory today for whistleblowers reporting fraud in the Iraq reconstruction effort, the Fourth Circuit Court of Appeals reversed a trial court's decision that took away a jury verdict from the whistleblowers or relators in this qui tam case under the False Claims Act.

The Custer Battles case has been a hard-fought one, which until this decision had produced one of the odder results found.

With hundreds of billions of U.S. dollars spent on the Iraq War and Iraq reconstruction, and with the False Claims Act supposedly protecting U.S. taxpayer funds from fraud, the whistleblowers filed a qui tam case under the False Claims Act that alleged fraud in certain contracts that addressed, among other things, replacing Iraqi currency in the Iraq reconstruction effort.

After the jury awarded a verdict to the whistleblowers, the trial court overturned it. The trial court did not view claims presented to the Coalition Provisional Authority (“CPA”) that was created and funded by the United States as the same as claims presented to the U.S. Government, even though the CPA officials were U.S. Government employees, and U.S. dollars were lost. Today's decision by the Court of Appeals reversed the trial court's decision and corrected that odd result.

This is a very positive development for whistleblowers reporting fraud in Iraq and elsewhere, as it corrects a strained interpretation of the law that has allowed fraud to go unaddressed. We congratulate everyone associated with this effort.

The Court's conclusion from the decision today is quoted below:

Continue reading "Major False Claims Act Victory for Whistleblowers in Iraq Fraud Case: Fourth Circuit Reverses Custer Battles Decision " »

Whistleblowers reporting fraud by contractors in Iraq reconstruction are coming forward, reports Stuart Bowen, the Special Inspector General for Iraq Reconstruction. The relatively calmer conditions in Iraq apparently are a factor in more whistleblowers coming forward, he believes.

From the $21 billion Iraq Relief and Reconstruction Fund, billions have been lost, according to Bowen.

“Thirty-two billion dollars later, we don't know a whole lot about what's happened to that money,” Bowen said.

"The actual reconstruction money, I estimate 15 to 20 percent has been wasted. Roughly $3-$4 billion," he said. Many projects have been plagued by waste and poor design.

"Millions [have been] wasted at the Baghdad police college because of extremely shoddy construction," Bowen said.

Iraq reconstruction whistleblowers may receive rewards of 15-30% of the fraud or false claims reported by using the False Claims Act, the major whistleblower law that we have written about often. They may also potentially use the IRS Whistleblower Program to obtain rewards, since illegal activity often results in tax violations.

In this age when fraud and abuse are depleting taxpayer funds, any whistleblower who steps forward to report fraud or other impropriety in the Iraq reconstruction is to be commended.

Continue reading "Iraq Whistleblowers Coming Forward, as Special Inspector General for Iraq Reconstruction Estimates Billions in Fraud and Waste" »

I had the pleasure of seeing again and speaking last week with Harry Markopolis, the "whistleblower" now renowned for his excellent work in recognizing and reporting to the SEC that Bernie Madoff was running a huge Ponzi scheme. Harry was in Washington attending the "IRS Whistleblower Boot Camp" sponsored by Taxpayers Against Fraud.

Harry Markopolis exemplifies the whistleblower who works diligently to "do the right thing." His appearance on 60 Minutes gave us a taste of his frustration over the years in attempting to cause the SEC to take action about Madoff.

We commend Harry for wearing the "white hat" so well--and we take our hats off to him. Let's hope the SEC creates a meaningful whistleblower program and listens to Harry about how it should operate.

Today, we were excited to hear that the Senate Judiciary Committee has sent long-needed amendments to the False Claims Act to the full Senate, as part of the "bailout" and "stimulus" inspired "Fraud Enforcement and Recovery Act" (FERA).

Where there are taxpayer funds being spent, there will be attempts to engage in fraud to cheat the public. As hundreds of billions of dollars are poured into federal and state programs through the “economic stimulus” package, the continuation of the Troubled Assets Relief Program (“TARP”), the many federally funded health care programs such as Medicare and Medicaid, and the vast defense procurement industry that is servicing two wars, opportunities for fraud will only increase. The speed at which the "stimulus" funds will be spent will only increase the opportunities for fraud.

Senator Grassley has been steadfast in his efforts to ensure that these taxpayer funds receive the protection of the False Claims Act, which is the primary civil weapon to combat fraud and false claims. This bipartisan legislation would restore the False Claims Act to its original intent by "undoing" several attempts by judges to limit its reach. Among the goals of the Amendments are:

--to clarify that False Claims Act liability protects all federal funds;

--to solely vest the Government with the power to dismiss whistleblower- filed False Claims Act lawsuits that are based on public allegations;

--to remove confusion over the statute of limitations period;

--to explicitly clarify that the False Claims Act applies to those who discover an overpayment and decide to pocket the funds; and

--to provide strengthened employment protection for whistleblowers.

All taxpayers should support these Amendments to the False Claims Act, and we applaud the Senate Judiciary Committee for this bipartisan effort to protect taxpayer funds.

I am very excited about co-chairing the Annual "Whistleblower Law Symposium" once again this week.

From Atlanta, Boston, Chicago, New Orleans, San Antonio, and Washington, D.C., many of the country's leading attorneys in whistleblower cases under the "qui tam" statute, the False Claims Act, the Sarbanes-Oxley statute, and the IRS Whistleblower Program will gather in Atlanta on March 4 to discuss some of the more challenging aspects of representing whistleblowers (or defending against whistleblower claims) under these laws.

We are honored to have one of the officials of the IRS Whistleblower Office, Dawn Applebaum, join us in person to discuss the progress of the new IRS Whistleblower Rewards Program. The IRS Whistleblower Office has just celebrated its second anniversary.

We are also privileged to have the top state enforcement officials in health care fraud cases from Texas, Florida, and Georgia, to explain how they coordinate state and federal health care fraud whistleblower cases under the federal and state False Claims Acts.

Also joining us is Rep. Edward Lindsey, the Legislative Sponsor both of the Georgia State False Medicaid Claims Act, and recent legislation to solidify Georgia’s Office of State Inspector General.

Because of the wave of new whistleblower statutes that have been inspired by the successes of the False Claims Act, our firm instituted the Whistleblower Law Symposium. Once again, top-notch speakers will address a broad variety of issues that arise under these whistleblower laws, including:

--Whistleblowers in Health Care: Recent Cases and Strategies for Healthcare Providers and Counsel When a Whistleblower Calls

--Recent Developments in Qui Tam Cases Under the False Claims Act—The Relator’s Perspective

--Update on the IRS Whistleblower Program

We are fortunate to have such excellent faculty members from around the country join us. Our faculty members and their topics are listed below.

Continue reading "Whistleblower Attorneys to Discuss Qui Tam Cases Under False Claims Act, IRS Whistleblower Program, and Sarbanes-Oxley Whistleblower Cases at Annual "Whistleblower Law Symposium"" »

Hidden schemes to defraud Medicare and state Medicaid programs of scarce taxpayer dollars are at the heart of many whistleblower cases under the federal and state False Claims Acts.

This morning, Wisconsin Attorney General J. B. Van Hollen announced that a Dane County, Wisconsin jury has just declared that a pharmaceutical manufacturer defrauded the Wisconsin Medicaid program by reporting grossly inflated and fraudulent prices.

Pfizer was on the receiving end of the health care fraud verdict, which may result in more than $153 million in damages based on alleged practices by Pharmacia (which Pfizer had acquired). The AG reportedly cited a 1993 internal memo in which a pharma employee wrote that "three decades of gaming the present reimbursement scheme has provided a lucrative avenue of profit."

"We as taxpayers, we as consumers, are not going to put up with being 'gamed' by anyone - no matter how big, no matter how small," Van Hollen said.

The case continues the trend of "Average Wholesale Price" litigation (AWP), alleging that drug manufacturers are defrauding state Medicaid programs by publishing false average wholesale prices for their products, in order to grossly overcharge these public programs for drugs. At least 27 states have sued pharmaceutical manufacturers over alleged AWP violations. Alabama has already obtained jury verdicts against three companies of approximately $330 million.

As an example, Wisconsin reportedly argued that Pharmacia listed the wholesale price of its anti-breast cancer drug Adriamycin at $241.36, when in fact it sold the drug to providers wholesale for as little as $33.43. Pharmacia then reportedly "marketed the spread" of $207.93 to oncology providers--a large profit margin.

As Wisconsin argued, the wider the "spread," the more probable a doctor or pharmacy is to increase sales of the drug.

We congratulate the Wisconsin Attorney General's Office on recovering these taxpayer funds.

Taking a brief break from "substantive" writing on this whistleblower lawyer blog, I could not help but briefly note this story today:

Filmmaker Michael Moore is seeking whistleblowers in the financial industry for his next film. He concludes "if you work for a bank, a brokerage firm or an insurance company -- or if you have seen things or heard things that you believe the American people have a right to know -- please contact me" via the email address posted on his blog.

Perhaps those whistleblowers should follow Sen. Grassley's strong advice to use the qui tam whistleblower provisions of the False Claims Act to report fraud and abuse in TARP or other "bailout" measures. Persons in the financial services industry already have contacted us to do just that, and some also have potential claims in the IRS Whistleblower Program.

Both the False Claims Act and the IRS Whistleblower law allow the private citizen whistleblowers to share in the government's recovery of money wrongfully obtained, as we have written about extensively.

We anticipate that the "stimulus" package in Congress this week also will produce many opportunities for fraud and abuse of taxpayer funds, so that whistleblowers also will be important to deter those abuses through use of the False Claims Act and the IRS Whistleblower Program.

Continue reading "Wall Street Financial Industry "Bailout" Whistleblowers Sought by--Michael Moore?" »

Those potential whistleblowers watching for TARP waste, fraud and abuse should note today's report of the Congressional Oversight Panel. According to the report, the Treasury Department has received "far less value in stocks and warrants than the money it injected into financial institutions."

The report, "Valuing Treasury Acquisitions," concludes that Treasury paid "substantially more for the assets it purchased under the TARP than the market value of those assets" at the time this deal was announced. The Panel revealed that, in the ten largest transactions with TARP funds, for each $100 spent by Treasury, it received assets worth only approximately $66.

The full report can be found at COP.Senate.gov.

Sen. Charles Grassley has emphasized that whistleblowers must use the qui tam provisions False Claims Act to guard against misuse of TARP funds through fraud, waste and abuse.

The Congressional Oversight Panel oversees the TARP funds authorized by Congress in the Emergency Economic Stabilization Act of 2008 (EESA) and provides recommendations on regulatory reform. The Panel members are Congressman Jeb Hensarling (R-TX), Richard H. Neiman, Superintendent of Banks for the State of New York, Damon Silvers, Associate General Counsel of the AFL-CIO, former U.S. Senator John E. Sununu (R-NH), and Elizabeth Warren, Leo Gottlieb Professor of Law at Harvard Law School.

We hope the Panel protects these taxpayer funds with zeal, and stops the inevitable attempts at misuse of the funds.

When improprieties occur with hedge funds, the hedge funds' lack of transparency and dearth of disclosure obligations make violations of the law difficult to uncover. Sometimes, persons in the hedge fund industry report those abuses through the IRS Whistleblower Program, as some of our IRS Whistleblower clients have done.

Nonetheless, the hedge fund industry remains cloaked in secrecy, frustrating experts who now seek to gauge the impact of hedge funds on the current financial crisis.

A new bill just introduced in the Senate, the "Hedge Fund Transparency Act," would lift that cloak and create disclosure requirements for hedge funds and oversight of hedge funds by the SEC. This bipartisan bill sponsored by Senators Chuck Grassley and Carl Levin modifies a prior approach to hedge fund scrutiny pressed by Sen. Grassley, after a whistleblower complained that SEC supervisors were impeding an investigation into a major hedge fund.

According to Sen. Grassley, "The bill contains four basic requirements to make hedge funds subject to SEC regulation and oversight. It requires them to register with the SEC, to file an annual disclosure form with basic information that will be made publicly available, to maintain books and records required by the SEC, and to cooperate with any SEC information request or examination."

Until the Bear Stearns debacle, there seemed little political will for any serious oversight of hedge funds. The SEC in 2004 had issued a rule requiring hedge funds to register under the Investment Advisers Act, to comply with related regulations, and to provide basic information through a public disclosure form. In June 2006, however, the U.S. Court of Appeals for the District of Columbia Circuit declared the rule invalid as incompatible with the Investment Advisers Act.

In hindsight, that absence of scrutiny may be seen as a grave error, one which may have helped create the current financial meltdown.

Since 1998, when the Federal Reserve acted to rescue Long-Term Capital Management (LTCM), a hedge fund with more than $125 billion in assets under management and a total market position of approximately $1.3 trillion, investments in hedge funds have grown dramatically.

Continue reading "Hedge Funds Face Regulation & Oversight by SEC--Will There Be Another Compliance Tool in Addition to IRS Whistleblower Program?" »

When the Wall Street "bailout" grew with Congress' creation of the Troubled Asset Relief Program (TARP), Sen. Chuck Grassley emphasized the importance of "whistleblowers" and the False Claims Act to protecting these taxpayer funds from fraud and abuse.

Tonight, the House added to the bailout by passing the economic stimulus package, HR 1, and approved an amendment adding whistleblower protection for federal employees.

The stimulus bill reportedly provides for $523 billion in spending, and $275 billion in tax cuts. It originally lacked protection for federal employees who are whistleblowers. An amendment by Reps. Todd Platts, R-Pa., and Chris Van Hollen, D-Md. added those protections from last year's thwarted Whistleblower Protection Enhancement Act, which cleared the House but not the Senate.

The history of government spending programs proves beyond doubt that the vast majority of fraud and abuse can only be revealed by whistleblowers. Protecting taxpayer dollars means protecting and rewarding whistleblowers. As Sen. Grassley observed in a November 17, 2008 letter about TARP:

As a longtime supporter of whistleblowers, I can attest to the fact that whistleblowers are often the key to uncovering schemes to defraud the government. With their inside knowledge of how businesses, corporations, or government agencies operate they are often privy to information that is often the necessary component to piece together how a fraud is perpetrated.

Both the False Claims Act and the IRS Whistleblower Program will be important in stopping fraud and misuse of taxpayer funds. When there is fraud, there is often an IRS violation as well.

Continue reading "Whistleblower Protections Added to Economic Stimulus Bill Passed by House" »

Financial fraud is a frequent topic of whistleblower cases and of this whistleblower lawyer blog, especially with TARP and the Wall Street "bailout" dominating headlines.

Senators Chuck Shumer and Richard Shelby have proposed a bipartisan bill to bolster federal resources to combat securities fraud and accounting fraud, the Supplemental Anti-Fraud Enforcement (“SAFE”) Markets Act.

Here are excerpts from the Senators' announcement:

“Our white collar crime divisions are under-staffed, under-funded, and overwhelmed,” Schumer said. “When a wave of violent crime sweeps through a city, the immediate response is to beef up the police forces, putting more cops on the beat, extending overtime, and making sure the city returns to safety. Our reaction to the financial crisis and the massive and complex financial fraud investigations that loom should be no different.”

The senators said Thursday that the investment in enforcement is a small price to pay to protect U.S. markets, and it could pay for itself. An increase in fines levied by the SEC and collection of orders of restitution in criminal cases could be far greater than the $110 million cost of increasing enforcement personnel.

As our government hemorrhages its taxpayers' funds to "bail out" firms that made poor decisions--such as American International Group (AIG), Bank of America, Citigroup, Goldman Sachs, and American Express--a just-issued report from the Government Accountability Office (GAO) raises a disturbing question: have many of the same firms already been avoiding paying their "fair share" of U.S. taxes by using offshore tax "havens"?

If so, whistleblowers will be performing a civic duty by reporting any tax evasion and noncompliance through the IRS Whistleblower Program.

"This report shows that some of our country's largest companies and federal contractors, many of which are household names, continue to use offshore tax havens to avoid paying their fair share of taxes to the U.S. And some of those companies have even received emergency economic funds from the government," said Sen. Byron Dorgan. "I think we should take action to shut down these tax dodgers and we will be introducing legislation to do just that."

GAO's findings included that:

Eighty-three of the 100 largest publicly traded U.S. corporations in terms of 2007 revenue reported having subsidiaries in jurisdictions listed as tax havens or financial privacy jurisdictions and 74 of the 83 had federal contracts in fiscal year 2007. For the 74 corporations, the amount of the federal contract obligations ranged from $12,000 to over $23 billion.

Several insurance companies, including American International Group Inc., Hartford Financial Services Group, Travelers Cos. Inc., Allstate Corp. and Berkshire Hathaway Inc. reportedly have subsidiaries in tax havens or financial privacy jurisdictions such as Bermuda and Switzerland.

With a "tax gap" of more than $350 billion each year--the amount owed but not paid in federal taxes--it is galling to most taxpayers to see any company that avoids paying its fair share now receive billions more in a "bailout" through the TARP program.

The GAO report did not state that any of the listed firms utilizing tax "havens" were necessarily violating current law. Sen. Dorgan did say that he planned to introduce legislation to "shut down these tax dodgers."

Continue reading "Will Wall Street Bailout Help Firms That Are "Tax Dodgers" and Hide Income in Offshore Tax "Havens"? And Will the IRS Whistleblower Program Provide a Remedy?" »

Continuing the "bailout," the Treasury Department has just announced the release of $14.77 billion in TARP funds to what it refers to as 43 "local" banks (listed below).

"Local" may be a misnomer, as the list includes $10 billion to Bank of America Corp., and more than $3 billion to American Express Company.

Let's hope that Congress and the Treasury Department make good on the promise to protect these taxpayer funds through effective oversight, meaningful restrictions, and whistleblower protections, and that Sen. Grassley's prediction that the qui tam whistleblower provisions of the False Claims Act will be used vigorously to redress any fraud or abuse with TARP funds comes true.

Below are today's announced recipients of the funds:

Continue reading "Treasury Department Announces $14 Billion in TARP Funds to More Than 40 "Local" Banks" »

As hundreds of billions in taxpayer funds flow to TARP bailout recipients, the government must make doubly sure to stop or minimize fraud and abuse in every federal program.

One area that cries out for attention is the underpayment of royalties owed to the government under oil and gas leases. The qui tam whistleblower provisions of the False Claims Act provide a basis for taxpayers to recover damages--and the whistleblower to receive a share of the recovery--when obligations to the government are underpaid. Separately, the IRS Whistleblower Program provides rewards to whistleblowers who report tax violations and tax noncompliance.

GAO reported last September that the government may be losing billions of dollars in royalties that it should receive under oil and gas leases. House Natural Resources Committee Chairman Nick Rahall described the approach of the Interior Department's Minerals Management Service as "faith in Big Oil to pay royalties on the honor system."

According to GAO,

Companies that develop and produce oil and gas resources from federal lands and waters do so under leases obtained from and administered by agencies of Interior—the Bureau of Land Management (BLM) for onshore leases and MMS’s Offshore Energy and Minerals Management (OEMM) for offshore leases. Together, these agencies are responsible for overseeing oil and gas operations on more than 28,000 producing leases to help ensure that oil and gas companies comply with applicable laws, regulations, and agency policies. Companies, or lessees, compensate the government for producing oil and gas resources on federal lands either “in value” (royalty payments made in cash) or “in kind” (royalty payments made in oil or gas). In fiscal year 2006, about 58 percent of the $9.74 billion in oil and gas royalty payments were made in value or in cash, while about 42 percent were made in kind.

GAO criticized MMS for failing to conduct sufficient inspections to ensure that oil companies that drill under federal leases accurately report production volumes on which royalties should be paid. GAO also pointed out that the government may have been denied "billions of dollars in forgone revenue" because royalty rates were established when the oil industry's profits were much less.

Adding to the chaos, the Inspector General of the Interior Department reported last fall that various government personnel in the MMS "Royalty-in-Kind" program received not only trips and gifts, but also engaged in sex and drug use, with industry representatives.

This system is broken. Those who contract with the government must not abuse that relationship by underpaying royalties. With a new Administration set to take over, the abuses in the royalties unpaid should be addressed. Whistleblowers with knowledge of these underpayments can help the government by using the qui tam statute, the False Claims Act, to recover damages for the government--and share in that recovery.

Much criticism has flowed from how the first $350 billion in TARP "bailout" funds are being used. Thus far, the need for additional restrictions to prevent and penalize fraud and abuse of TARP money remains unmet.

In response, yesterday House Financial Services Committee Chairman Barney Frank proposed legislation establishing greater limits on use of TARP funds, among other things.

The "TARP Reform and Accountability Act of 2009" (HR 384) would require quarterly reports from recipients on their use of TARP funds, restrict the use of TARP funds for acquisitions, and impose further limits on executive compensation. Among its other terms are that it would increase the authority of the Financial Stability Oversight Board.

A potentially very significant point is that the Act empowers Treasury to apply the new limits on bonuses and other executive compensation to past recipients of TARP funds.

The new restrictions should further Sen. Grassley's call for use of the False Claims Act, the very successful qui tam whistleblower statute, to protect TARP funds.

The entire TARP Reform and Accountability Act of 2009 may be found at http://www.rules.house.gov/111/LegText/111_HR384txt.pdf.

The TARP bailout funding continues, as the Treasury Department announced today that it will buy $5 billion in senior preferred equity with an 8% dividend from GMAC LLC.

Senator Charles Grassley has emphasized that TARP and other "bailout" funds must be protected through whistleblower protections and whistleblower laws such as the False Claims Act. The GMAC announcement today will present ample opportunities to test those premises on which Congress approved the bailout funding.

The Treasury announcement is reprinted below:

Continue reading "Treasury Department Announces TARP Investment in GMAC" »

Fraudulent tax shelters continue to be a target not only of IRS Whistleblower claims, but also of enforcement actions.

We have followed closely the KPMG tax shelter fraud case in this whistleblower lawyer blog. The trial of four defendants ended this week, with two former KPMG partners and one attorney convicted of multiple counts of tax evasion for their roles in the bogus tax shelters. Another lawyer defendant was acquitted.

Prosecutors alleged that KPMG officials offered wealthy clients illegal offshore tax shelters, and paid outside attorneys to give the bogus shelters the appearance of legitimacy. According to the government, the investments had no real risk, and generated "paper losses that allowed the accounting firm's clients to offset income.

Through tax shelters with names such as BLIPS, FLIP and OPUS, the clients were able to claim falsely that they had taken sizeable loans to buy stock, according to the government. Clients allegedly paid fees equal to 7 percent of the amount of losses sought.

After a two month trial, former KPMG tax partner Robert Pfaff, former KPMG senior tax manager John Larson, and attorney Raymond J. Ruble were found guilty on multiple counts of tax evasion. Another former KPMG tax partner was acquitted on the five counts of tax evasion.

The accounting firm agreed two years ago to pay $456 million to resolve the allegations against the firm itself. Guilty pleas previously were entered by the government’s chief witness, David Amir Makov, former KPMG partner David Rivkin, and former HVB Group accountant Domenick DeGiorgio.

Continue reading "KPMG Tax Shelter Fraud Trial Ends With Three Tax Evasion Convictions for Accountants and Lawyer" »

Some recent significant recoveries under the False Claims Act--the nation's primary tool for fighting fraud and false claims--are summarized below. This summary is part of a paper I submitted in connection with serving on the faculty (with some excellent attorneys) of the "Southeastern Health Care Fraud Institute" on December 18, 2008.

Health care attorneys will gather at the Institute to discuss developments under the qui tam provisions of the nation's major whistleblower statute, the False Claims Act, as well as other issues relating to fraud in the health care industry.

Recent Significant False Claims Act Recoveries
(as reported by www.taf.org)

Merck ($650 million settlement in February 2008, arising from allegations of nominal pricing fraud, and kickback and best price violations for the arthritis drug Vioxx, the cholesterol drug Zocor, the acid-reflux drug Pepcid, the hypertensive medication Cozaar, the bone loss drug Fosamax, the migraine medication Maxalt, and the asthma medication Singulair.)

Cephalon ($375 million settlement in November 2007 arising from alleged off-label marketing of narcotic lollipop Actiq (Afentanyl citrate@) as well as Gabitril (an epilepsy medication) and Provigil (a narcolepsy medication.)

Amerigroup ($225 million settlement in July 2008, which was the final settlement after jury trial over allegations that the defendant was Acherry-picking@ the healthiest patients to reduce Medicaid HMO liability/spending.)

Staten Island University Hospital ($88 million settlement in September 2008, based on allegations that the hospital fraudulently billed Medicaid and Medicare for inpatient alcohol and substance abuse detoxification treatment beds for which it did not have verification, fraudulently inflated its patient count, and fraudulently billed Medicare for stereotactic body radiosurgery treatment that was provided on an out-patient basis to cancer patients.)

Continue reading "Qui Tam Whistleblower Recoveries under False Claims Acts (Federal and State) in 2008" »

The country's ongoing economic distress has produced layoffs in many industries, and pharma appears to be feeling the pain as well.

Recent layoffs reported in the drug industry include Sanofi (650 sales reps);Novartis (550 U.S. salespersons);Merck (8,000); Wyeth (2,440); GSK (1,000); Schering-Plough (5,500);and Boehringer Ingelheim (200).

On the same grey November day when President Bush visited Wall Street's Federal Hall to address the ever-morphing "bailout," I was in lower Manhattan meeting with IRS officials about an IRS Whistleblower matter. The tax evasion scheme we discussed was yet another that has cost taxpayers dearly.

As NYPD officers scurried about to help protect the President that day, I wondered who and what would protect our taxpayer funds--the hundreds of billions the government was now about to dole out--from fraud and abuse.

Fraud is rampant, as proven by the evidence brought to light by so many of our whistleblower clients under the qui tam statute, the False Claims Act, and now under the new IRS Whistleblower Program.

A few days later, Sen. Chuck Grassley hammered the same point in a November 17, 2008 letter to Treasury Secretary Paulson and Attorney General Mukasey. Grassley has insisted on effective oversight of the Troubled Asset Recovery Program (TARP) and the Capital Purchase Program (CPP), as well as on encouraging "whistleblowers" to come forward:

In the meantime, taxpayer dollars are at risk and I believe it is important to discuss alternative procedures and measures that can be taken to ensure taxpayers aren’t taken to the cleaners by unscrupulous individuals. One proven and effective method of overseeing taxpayer funds has been to support courageous whistleblowers who risk their jobs and livelihoods to bring forth allegations of fraud, waste, and abuse of taxpayer monies. As a longtime supporter of whistleblowers, I can attest to the fact that whistleblowers are often the key to uncovering schemes to defraud the government. With their inside knowledge of how businesses, corporations, or government agencies operate they are often privy to information that is often the necessary component to piece together how a fraud is perpetrated. As such, I believe you should both work to ensure that all entities participating in the TARP and CPP are made aware that any allegations of fraud, waste, or abuse will be treated seriously and properly referred to the Treasury Inspector General or the Attorney General for review until a Special Inspector General for the TARP is appointed.

Grassley also emphasized the importance of the False Claims Act, the nation's primary civil weapon for combating fraud against taxpayer funds, in preventing and penalizing fraud in the bailout:

[E]ntities who receive federal funds under the TARP and CPP are subject to the provisions of the FCA should they use false or fraudulent submissions in order to obtain federal funds. For instance, any entity that submits false or fraudulent information in an application to Treasury in order to obtain federal funds available through the CPP would be liable to the Government under the FCA. Further, while it has been reported that the Treasury does not currently plan to utilize authority under the Act to use the TARP to purchase distressed assets either directly or indirectly, should Treasury exercise its authority to do so, any fraudulent statements or submissions made to induce the Government to purchase those assets would also subject the fraudfeasors to liability. As a result, these individuals and corporations could be subject to civil penalties and treble damages for committing fraud against the Government.

Continue reading "Whistleblowers, TARP, and Other Wall Street "Bailout" Measures--Why the False Claims Act and IRS Whistleblower Program Are More Essential Than Ever" »

Will Wall Street Bailout Produce the Next Round of Whistleblowers Reporting Fraud?

The U.S. Department of Justice this week announced its FY 2008 recoveries in fraud and False Claims Act cases, with more than $1 billion in health care fraud recoveries alone, and a total of more than $1.3 billion. (As explained below, we believe the $1.3 billion figure is low and understates the actual fraud recoveries this year.)

Cases brought by "relators" or whistleblowers under the nation's primary whistleblower statute, the False Claims Act, accounted for 78% of the money recovered. Since the False Claims Act took its current form in 1986, this law has recovered more than $21 billion of taxpayer funds from those who defraud the government.

As health care costs have grown as a percentage of the federal budget, so have recoveries for health care fraud. Recoveries of federal dollars were made because of fraud not only in Medicare and Medicaid, but also other federal programs such as Tricare and the Federal Employees Health Benefits Program.

The largest recoveries were from pharmaceutical companies--Cephalon Inc., Merck & Co. and CVS Caremark Corp. paid more than $640 million. Pharmaceutical fraud cases also repaid $430 million to state Medicaid programs.

DOJ also cited recoveries in cases of fraud affecting defense procurement contracts, disaster assistance loans and agricultural subsidies.

The actual recoveries were greater if you compare DOJ's announcements of its settlements, as well as include dollars recovered under the various State False Claims Acts. (We have written extensively about why states are enacting their own State False Claims Acts to mirror the federal False Claims Act, given the federal law's successes.)

With whistleblowers reporting fraud infecting in the Wall Street bailout funds (because no federal program is immune), it will be interesting to see how these billions of federal dollars show up in future statistics of fraud recoveries.

We have reprinted below DOJ's "fact sheet" about its FY 2008 significant recoveries. We congratulate Justice on another very successful year in fighting fraud and false claims.

Continue reading "Justice Department Announces 2008 Fraud & "Qui Tam" False Claims Act Recoveries, with Medicare, Medicaid, and Other Health Care Fraud Alone Topping $1 Billion in Recoveries of Taxpayer Funds" »

In our former life as lawyers defending False Claims Act cases, our defendant clients had to consider whether the payments made to settle qui tam cases under the False Claims Act were deductible for tax purposes, and to what extent.

The IRS recently issued a paper on the subject: whether a defendant's payment to the Department of Justice to resolve False Claims Act allegations is "deductible in its entirety as a section 162(a) ordinary and necessary business expense, or includes non-deductible penalty amounts under section 162(f)."

This paper, LMSB-4-0908-045, is reproduced below:

Continue reading "IRS Addresses Deductibility of Payments by Defendants to Settle False Claims Act Cases" »

Will the IRS Whistleblower Program and the False Claims Act be powerful weapons in redressing the fraud and abuse that led to the current financial crisis--and to the future fraud and abuse that is certain to target the "bailout" billions of taxpayer funds?

Fraud and abuse have never been in short supply. The ongoing financial crisis points to staggering amounts of past financial abuses that now threaten to wipe out Americans' savings, if not undermine the world economy.

Now, the federal government's stated plans to spend hundreds of billions of taxpayer funds for the "bailout"--largely because of the lack of past oversight--will create countless opportunities for more fraud against the taxpayers.

In the Savings and Loan debacle, a judge asked, "Where were the lawyers?" Where were those who could have spoken out and stopped those abuses before they caused ruinous harm?

Today, the toxic loans, collateralized debt obligations, and credit default swaps that infect our financial system raise a broader question: how many persons failed to speak out to try to stop their corrupting misuse?

Scoundrels depend on silence from others while they loot the public fisc. To stop the looting, Americans (and others) must stand up, and speak up.

Whistleblowers will be essential to minimizing the theft of the bailout billions, through the IRS Whistleblower Program and the qui tam provisions of the False Claims Act, on which we have written extensively. Each allows private citizen whistleblowers to help the government recover taxpayer funds, and rewards the whistleblowers with what is typically 15-30% of the funds recovered.

It will be justice to see those whistleblowers courageous enough to speak up share in the government's recovery of the billions already lost, and the billions more of taxpayer funds that are about to be spent.

The Medicare program depends on the integrity of "trusted contractors" to process and pay Medicare claims. This past week, one of those "trusted contractors" operating in New Jersey, BlueCross BlueShield of Tennessee, agreed to pay the federal government $2.1 million to resolve allegations that it violated the False Claims Act.

BlueCross BlueShield of Tennessee operated as the primary Medicare Part A Fiscal Intermediary for New Jersey, under the name "Riverbend Government Benefit Administrators."

The government had alleged that BlueCross BlueShield of Tennessee "failed to adjust the cost-to-charge ratios for many New Jersey hospitals in a timely manner between 2000 and 2002 that resulted in the payment of excessive 'outlier payments' by Medicare program to those medical facilities." The "outlier payments" are supplemental reimbursements to hospitals in situations when the cost of care is unusually high, which are paid "to ensure that hospitals possess the incentive to treat inpatients whose care requires unusually high costs," as described in the government's announcement.

The Justice Department's announcement took aim at "contractors that falsely bill for crucial tasks that they do not perform,” in the words of Gregory G. Katsas, Assistant Attorney General of the Civil Division.

We congratulate the coordinated efforts of the various agencies that brought about this result: the Justice Department’s Civil Division’s Commercial Litigation Branch; the U.S. Attorney’s Office for the District of New Jersey, Affirmative Civil Enforcement Unit; the Department of Health and Human Services, Office of Inspector General and Office of Counsel to the Inspector General; the Centers for Medicare and Medicaid Services; and the FBI.

The wave of new State False Claims Acts has generated a flurry of letters from the Office of Inspector General of HHS this past week. OIG has now "approved" the new State False Claims Acts of California, Georgia, Indiana, and Rhode Island, but has "disapproved" those of six other states: Florida, Louisiana, Michigan, New Hampshire, New Mexico, and Oklahoma.

As this whistleblower lawyer blog has written about extensively, Congress has created financial incentives for states to enact their own versions of the highly successful qui tam whistleblower law, the False Claims Act, which is the government's primary tool for combating fraud directed at taxpayer funds.

Under the Deficit Reduction Act of 2005, each state that has a False Claims Act that is at least as effective in facilitating and rewarding qui tam actions as the Federal False Claims Act in protecting state Medicaid funds is entitled to a greater share of fraud recoveries from those actions.

OIG must "approve" the state's whistleblower law for the state to be eligible for the additional funds. In effect, states may enact laws with stronger or more effective provisions than the federal False Claims Act, but cannot enact a "weaker" or less effective version of the False Claims Act and still receive the increased funds.

You can read here OIG's analysis of the problems it found with the False Claims Acts of Florida, Louisiana, Michigan, New Hampshire, New Mexico, and Oklahoma.

Fortunately, these problems are easily corrected. OIG has now informed these states precisely how their statutes should be amended to entitle them to receive the additional share of fraud recoveries.

At the annual "Continuing Judicial Education" conference in St. Simon's Island, Georgia this week, I was honored to be invited to speak to the assembled judges about the new state False Claims Act in Georgia, the State False Medicaid Claims Act.

As this whistleblower lawyer blog has written about extensively, there is a wave of new state False Claims Acts across the country, as Congress has urged states to replicate the dramatic successes of the federal False Claims Act in stopping those who steal taxpayer funds.

In 2007 and 2008 to date, Georgia, New York, New Jersey, Oklahoma, Rhode Island, and Wisconsin have joined the 16 other states that have enacted some version of the False Claims Act.

Because the False Claims Act has unique procedures that are foreign to most lawyers, judges, and courthouse staffs, the focus of the discussion was on how to manage cases under state False Claims Acts.

I am grateful to former Chief Judge Stephen Boswell (who has joined our firm as counsel) for his invaluable help in this project.

Having lunch this week with a public servant who investigates heath care fraud, I was struck once again by his descriptions of abuses that nursing home residents too often suffer, many of which our whistleblower attorneys had also encountered in past cases.

It is damnable enough to steal federal and state taxpayer funds that are supposed to pay for care of our elderly through Medicare and Medicaid. It is another level of depravity to ignore our elder citizens' medical needs--and even to steal from patient accounts--for personal gain.

The Attorney General of Massachusetts this past week announced that two such persons--brothers who operated nursing homes--have pleaded guilty to charges based on stealing funds and neglecting nursing home patients.

Joel K. Logan and Todd Logan reportedly pled guilty to charges of Larceny, Medical Assistance Fraud by a Provider, Conspiracy, Fiduciary Embezzlement, and Neglect of Patients in Long-Term Care Facilities.

According to the State, the Logans and their nursing home corporations admitted that they converted Medicaid funds to their own personal use, and failed to provide patients in the homes necessities such as food, medicine, sanitary conditions and bed linens. The defendants reportedly used the money for personal expenditures, including "horse racing activities and luxury boats."

They also admitted to "stealing $82,000 from the statutorily regulated Patients Needs Accounts (PNA)" for three of the nursing homes, to embezzling funds from the employer-sponsored 401(k) Plan, and to other misconduct, according to the State.

Because nursing home residents are so vulnerable, they depend on honest persons to "blow the whistle" on such abuses. We commend those who helped stop these abuses--and urge others to speak out to protect our elderly citizens and taxpayer funds.

The government's announcement this week of a $60 million Medicare fraud settlement with a Missouri hospital system is yet another example of the need for ongoing deterrence of health care fraud.

According to the government, Lester E. Cox Medical Systems violated the False Claims Act, the nation's primary tool for combating fraud against taxpayer funds. Dating back to 1995 and continuing to recent years, Cox allegedly committed various unlawful acts, including submitting fraudulent cost reports to obtain Medicare funds, entering into illegal arrangements with doctors that violated the Stark Law and the Anti-Kickback Statute, and other misconduct.

Cox reportedly will pay $35 million immediately, with five annual payments of $5 million (plus interest) to follow. Cox also has entered into a "comprehensive" Corporate Integrity Agreement with the Office of Inspector General of the United States Department of Health and Human Services, designed to cause compliance with federal requirements for receiving federal dollars.

Although the settlement amount sounds substantial, it appears that the government alleged that the Medicare program's losses were far greater. The government says it took into account Cox's "ability to pay" and continuation of services to the community.

I have been most impressed by the federal prosecutors I have dealt with in Missouri who investigate health care fraud cases brought under the qui tam provisions of the False Claims Act. The government's attorneys' work is to be applauded.

Still, from a taxpayers' perspective, the settlement only recovers a portion of the taxpayers' loss. As doctors and patients fight to keep scarce Medicare dollars available for patient care, we cannot tolerate fraud that reduces the funds needed by patients.

This settlement demonstrates the need for continued action any time health care fraud is detected. It was this need that motivated Congress in 1986 to create meaningful financial incentives for private citizens (relators) to bring qui tam cases under the False Claims Act, and to share in the government's recovery of damages from those who defraud the government.

The False Claims Act provides awards of 15 to 30 percent of judgments and settlements against those individuals and companies that perpetrate schemes to defraud the federal government. In the event a whistleblower files a lawsuit in the name of the United States, “blows the whistle” on the fraud scheme and a financial recovery results, the whistleblower is entitled to a percentage of the recovery. Those cheating the government pay these rewards. Not one dime comes from taxpayers. The reason for this is that the False Claims Act imposes treble damages against the wrongdoer(s) so that not only can the government can be made whole from the fraud and recover all costs of the whistleblower’s awards but also recover the cost of the investigation and prosecution and lost interest on the money.

More than 80% of False Claims Acts which are pursued by the United States Department of Justice are initiated by whistleblowers. The federal government has never had a good record of investigating fraud on its own, especially in complex and technical areas like healthcare and defense procurement where specialized knowledge is required to uncover sophisticated and concealed schemes to defraud, price gouging, shotty goods and services, etc. In the history of the United States, no law has worked better to safeguard taxpayer money against fraud than the False Claims Act. False Claims Acts judgments and settlements have totaled over $14 billion since 1986. In the healthcare arena alone, the federal government is recovering $13.00 for every dollar spent in investigations, prosecutions and whistleblower awards. In addition to these direct recoveries, obviously, false claims prosecutions deter other companies and individuals from similar acts of fraud.

The reason the False Claims Act works so well is that informants/whistleblowers with special knowledge of frauds, often corporate insiders, are given incentives to blow the whistle and bring to justice corporations that are stealing monies from the American taxpayer. Whistleblowers that come forward often risk their careers. They are routinely ostracized. Many times they are retaliated against for blowing the whistle on wrongdoing. Thus, it is only just that the whistleblower should be rewarded for taking these risks and exposing fraud for the betterment of all taxpayers.

We continue to be proud of our association with whistleblowers and look forward to representing those courageous enough to expose their own employers and other wrongdoers under the False Claims Act. While the road to a successful result is often long and tedious, to expose a fraud scheme to the light of justice is a reward in and of itself. Whistleblowers should be encouraged by all taxpayers to come forward so as to root out fraud and expose schemes perpetrated by those who would defraud their own government.

"What motivates whistleblowers" is a question that our whistleblower attorneys are asked frequently. Basic honesty and integrity--trying to do the right thing--is what we see most.

It is deeply satisfying when a whistleblower's courage in insisting on honesty and integrity is recognized and applauded. I just received this note that was sent to a client who had "taken a stand" for honesty and integrity in handling federal grant funds at an educational institution, and I am reprinting portions here. Its truth and eloquence speak for themselves:

You don't know me, but we share a couple of things in common. I worked in the [same institution] from late 2002 to early 2004. . . .

Thank you for your personal example of integrity, of honoring academic standards, and persistence. To be sure, you are a gifted scholar AND champion to so many. I wish you and your family all good things in the future.

Very important amendments to the nation's major whistleblower law, the False Claims Act, cleared the House Judiciary Committee today. The False Claims Act Corrections Act of 2007 is intended to restore the False Claims Act to its originally intended usefulness. It will eliminate many "loopholes" that dishonest government contractors have used to avoid liability.

Our whistleblower lawyer blog has often written about the False Claims Act, the qui tam law that empowers private citizens to report fraud as whistleblowers or "relators," and to share in the government's recovery of damages. We have tracked the development of the Senate version of the new whistleblower law amendments, the False Claims Act Correction Act (S. 2041), since it was proposed last September by a bipartisan group that included Senators Grassley, Durbin, Leahy, Specter and Graham.

Taxpayers Against Fraud (with which I am proud to be associated) summarizes its key provisions as follows:

--to clarify that False Claims Act liability protects all federal funds;

--to solely vest the Government with the power to dismiss whistleblower- filed False Claims Act lawsuits that are based on public allegations;

--to remove confusion over the statute of limitations period;

--to explicitly clarify that the False Claims Act applies to those who discover an overpayment and decide to pocket the funds; and

--to provide strengthened employment protection for whistleblowers.

The bill moves on to consideration by the entire House of Representatives. We will continue to report on the progress of this essential bill, and applaud those who have worked for its passage!

This past week, more than 450 of the country's best employment lawyers who represent individuals gathered in Atlanta for the National Employment Lawyers Association's Annual Conference.

I had the pleasure of appearing with a group of excellent attorneys on a panel of that discussed "Strategic Thinking in Whistleblower Cases," moderated by Robin Potter of Chicago (who won a major victory last week).

Speakers at the 2008 NELA Conference panel on "Strategic Thinking in Whistleblower Cases" were (front row) David Marshall and Bryan J. Schwartz, and (back row) Michael A. Sullivan and Mark Kleiman.

David Marshall of D.C.'s Katz, Marshall & Banks, LLP began by discussing how nesessary whistleblowers are, as well as important considerations in pursuing Sarbanes-Oxley whistleblower cases.

Bryan J. Schwartz of Nichols Kaster & Anderson’s office in San Francisco then spoke on strategies in representing federal employees as whistleblowers.

Next, Michael A. Sullivan (this whistleblower lawyer blog author) of Finch McCranie, LLP discussed briefly the trend of new State False Claims Acts, and then explained in greater detail the new IRS Whistleblower Rewards Program.

Mark A. Kleiman of Santa Monica closed by regaling the audience with lessons he has learned from False Claims Act litigation, in particular from the recent case against Merck that resulted in a huge settlement.

I enjoyed this terrific opportunity to work with and hear from these accomplished lawyers, and thank NELA (especially Terri Chaw and the NELA staff) and my friends at NELA-Georgia for organizing this outstanding conference. I applaud the work not only of my co-panelists at the NELA Conference, but also of the many NELA members who strive tirelessly to obtain justice for their clients.

A wave of new “whistleblower” laws continues, inspired by the successes of the federal False Claims Act. These new laws include (1) state versions of the federal False Claims Act, and (2) the new IRS Whistleblower Rewards Program. At the same time, in 2008 Congress is considering legislation to strengthen the False Claims Act.

This article focuses on the new state False Claims Acts, which mirror the federal False Claims Act in important respects, but can differ in some significant ways. For employees who report fraud against the government and who face adverse employment actions, these new whistleblower laws may provide substantial relief.

One of the new state whistleblower laws, the Georgia “State False Medical Claims Act,” became law on May 24, 2007. Participating in the signing ceremony with Governor Sonny Perdue were (shown above from left to right) Carrie Downing, Director of Legislative and External Affairs of the Georgia Department of Community Health; Dr. Rhonda Medows, Commissioner of the Georgia Department of Community Health; Inspector General Doug Colburn; Governor Perdue; Rep. Edward Lindsey, sponsor of the State False Medicaid Claims Act; whistleblower lawyer blog author Michael A. Sullivan of Finch McCranie, LLP; and Philip Consuegra, Legislative Assistant to Rep. Lindsey.

These new state False Claims Acts and the federal False Claims Act create civil liability for treble damages and potentially huge penalties for fraud and false claims submitted to the government. They authorize “qui tam” or “whistleblower” lawsuits by employees or other persons, who may share in the government’s recovery, as well as allow employees to recover damages for retaliation. These state False Claims Acts, like the federal Act, have unique procedural requirements that are foreign to most lawyers.

This article explains how the state False Claims Acts work, which itself requires an explanation of the unique and sometimes perplexing federal False Claims Act on which these state Acts are based. This article summarizes the background of the federal False Claims Act, outlines how it operates, and discusses the Act’s increasing use to combat fraud directed at public funds. This article also highlights the important differences between state False Claims Acts and the federal False Claims Act by focusing especially on one example, the new Georgia State False Medicaid Claims Act. Finally, this article also compares other states’ False Claims Acts, their retaliation provisions, and some of the recoveries that states have obtained to date.

Continue reading "Whistleblower Lawyer Blog Update: New State False Claims Acts Reward Employees and Other Persons Who Report Fraud " »

Today saw a major development that could affect every whistleblower, whistleblower attorney, and whistleblower case involving the False Claims Act, the nation's primary whistleblower law. The U.S. Senate Judiciary Committee today approved new legislation to restore the False Claims Act to its originally intended strength, by eliminating a series of "loopholes" that dishonest government contractors had used to avoid liability.

Our whistleblower lawyer blog has written extensively about the False Claims Act, the qui tam statute that allows private citizens to report fraud as whistleblowers or "relators," and to share in the government's recovery of damages. We have followed the development of the new whistleblower law amendments, the False Claims Act Correction Act (S. 2041), since it was introduced last September by a bipartisan group of Senators (Grassley, Durbin, Leahy, and Specter).

The advocacy group Taxpayers Against Fraud (with which I am proud to be associated) describes the new law as "A Better Rat Trap" designed to put more "snap" into the False Claims Act, and summarizes its key provisions as follows:

--to clarify that False Claims Act liability protects all federal funds;

--to solely vest the Government with the power to dismiss whistleblower- filed False Claims Act lawsuits that are based on public allegations;

--to remove confusion over the statute of limitations period;

--to explicitly clarify that the False Claims Act applies to those who discover an overpayment and decide to pocket the funds; and

--to provide strengthened employment protection for whistleblowers.

According to Jeb White, President of Taxpayers Against Fraud, "[t]his is common sense legislation that we expect to sail through the House and Senate. . . . It's hard to be opposed to building a better rat trap to catch corporate cheats, chiselers, and con artists."

The bill passed the Judiciary Committee overwhelmingly, and moves forward in the legislative process.

We congratulate everyone who had a part in moving the new law forward, so that these loopholes for dishonest contractors may finally be closed.

The Justice Department has announced that Besler & Company, Inc., a New Jersey health care consulting firm, and its principal Philip Besler, have agreed to settle allegations of fraud against the federal Medicare program, which were initiated by two qui tam whistleblower cases. The settlement is for $2.875 million, plus interest, paid to the federal government.

The settlement concludes that the Besler firm counseled hospital clients to improperly increase charges to Medicare patients, so that they would obtain enhanced reimbursement from Medicare.

Medicare pays supplemental reimbursements or "outlier payments" to hospitals when the cost of care is unusually high. Congress enacted the supplemental outlier payment system to ensure that hospitals possess the incentive to treat inpatients whose care requires unusually high costs.

The Justice Department's announcement alleged that, "between January 2001 and August 2003, Besler & Company advised hospitals to purposefully inflate charges for inpatient and outpatient care to make these cases appear more costly than they actually were, and thereby augment their outlier reimbursements."

We congratulate those involved for bringing about this result!

Tomorrow, the Senate Judiciary Committee will hold a hearing on a much-needed bill that will restore to its intended effectiveness the government's primary law for combating fraud.

Our whistleblower lawyer blog has written previously about the "False Claims Act Correction Act." The Act is one of the most significant developments in whistleblower law since the 1986 amendments that created the modern False Claims Act.

This is a bipartisan bill designed to restore the government's "primary" tool for fighting fraud against taxpayers, the False Claims Act, to its intended usefulness. Several court decisions have weakened the False Claims Act and inhibited its effectiveness in fighting fraud.

The publication Legal Times contacted me last week to discuss the bill's importance. In its February 25, 2008 issue, Legal Times (http://www.law.com/jsp/dc/PubArticleDC.jsp?id=1203508156014&hub=TopStories) includes only one comment from a "whistleblower" lawyer, my comment that:

"'This would remove a series of technicalities for those who get away with stealing taxpayer funds,” says Michael Sullivan, a plaintiffs lawyer at Atlanta’s Finch McCranie."

What was edited out is that those who have succeeded in defrauding the public now often take advantage of a series of "technical" defenses that allow them to escape accountability--defenses that were never intended by Congress in enacting the current version of the False Claims Act.

No contractor who has not committed fraud will have any concerns about the new bill.

We will continue to report on the bill's progress!

The trend of new state False Claims Acts with qui tam whistleblower provisions continues, as Louisiana considers whether to adopt its own version of the federal False Claims Act.

The growing number of state False Claims Acts has been a frequent topic of this whistleblower lawyer blog. In 2007, New York, Georgia, and Oklahoma joined the 16 other states that have enacted versions of the federal False Claims Act, the government's primary weapon for fighting fraud against taxpayers.

New Jersey enacted its new False Claims Act in January 2008. It became the 20th state with such a qui tam whistleblower law.

We applaud Louisiana's progress with its new False Claims Act!

Whistleblowers and their attorneys filing suit under the False Claims Act helped federal authorities recover $2.2 billion in Medicare and Medicaid fraud cases in fiscal year 2006, according to a government report just released. The whistleblowers or "relators" received $140 million of the proceeds for their efforts, under the qui tam provisions of the False Claims Act.

As this whistleblower lawyer blog has written about extensively, the federal False Claims Act is the government's "primary" weapon for combating fraud. As health care expenditures have grown as a share of the federal budget, health care fraud now accounts for more than 70% of the government's annual fraud recoveries.

It was encouraging to see the new "Health Care Fraud and Abuse Control Program Annual Report For FY 2006." This report by the Office of Inspector General (OIG) of the Department of Health and Human Services (HHS), and the Department of Justice, summarizes both organization's FY 2006 results in battling Medicare and Medicaid fraud and recovering money improperly obtained from these programs.

In 2006, DOJ and OIG surpassed their 2005 recoveries totalling $1.47 billion in cases involving health care fraud and abuse.

This report cited 836 new investigations begun during 2006, for a total of 1,677 active investigations. 547 defendants in heath care fraud cases were convicted in criminal prosecutions in 2006.

In civil cases, DOJ took on 915 new health care fraud cases, which raised the total to more than 2000 in 2006.

The largest single recovery was a $900 million settlement Tenet Healthcare Corp. Whistleblowers came forward to report that Tenet was abusing Medicare and paying kickbacks to physicians to send patients to Tenet hospitals.

Other notable recoveries from hospital systems in FY 2006 included St. Barnabas Health Care System in New Jersey ($265 million), Beth Israel Medical Center in New York ($73 million), the Chattanooga-Hamilton County Hospital Authority in Tennessee ($37 million), University Hospitals Health System in Ohio ($13.8 million), Our Lady of Lourdes Regional Medical Center in Louisiana ($3.8 million) and the Milton S. Hershey Medical Center in Pennsylvania ($2.9 million).

Pharmaceutical fraud recoveries included $704 million from drug manufacturer Serono, and $435 million from Schering-Plough.

Durable medical equipment (DME) fraud also resulted in significant recoveries.

For those wishing to review the complete report, it is at http://oig.hhs.gov/publications/docs/hcfac/hcfacreport2006.pdf.

We congratulate OIG and DOJ on their successful efforts in recovering more than $2 billion of money fraudulently obtained from health care programs in FY 2006.

If an organization or individual is receiving a federal subsidy of any kind and makes false statements to the Federal Government with respect to such subsidies, such false statements could subject the receiver of the subsidy to liability under the Federal False Claims Act. In short, if a recipient of a federal subsidy makes false statements concerning eligibility for the subsidy and/or the amount of the subsidy sought or obtained, the recipient could be sued for fraud by a whistleblower with knowledge of the false statements. In some cases, the recipient of a subsidy may not be legally entitled to receive it or even if they are, they may not be entitled to receive the amounts being sought. In short, false statements made in connection with an application for or receipt of federal funds are actionable under the False Claims Act and if someone receiving a federal subsidy is proven to have made such false statements, they can be liable for three times the amount of the subsidy received plus statutory penalties as set forth under the Federal False Claims Act.

The Cato Institute oftentimes blogs about government fraud, abuse and waste. There are many entries in that firm’s website about federal give-away programs and “unnecessary” or wasteful subsidies. Many federal subsidies are doled out without any follow-up accounting and/or audit of whether the entity or person applying for the subsidy is entitled to receive it and/or is entitled to receive a subsidy in as great an amount as is involved. This lack of administrative oversight, therefore, opens up virtually every federal subsidy program to fraud, waste and abuse.

Any person with knowledge of such fraud could qualify for a reward under the Federal False Claims Act if they blow the whistle on fraud in connection with federal subsidy programs. Since there is little federal oversight in many of the federal subsidy programs, it is apparent that fraud occurs in these federal programs, as in any other, and that whistleblowers would be doing all taxpayers a service if they came forward exposing it.

Two days ago on 1/28/08 President Bush signed into law the National Defense Authorization Act for the fiscal year 2008. This legislation includes a provision protecting defense contractor employees who blow the whistle on contracting fraud. 10 U.S.C. § 2409 has specifically been amended via Section 846 to protect employees for disclosing “information that the employee reasonably believes is evidence of gross mismanagement of a Department of Defense contract or grant, a gross waste of Department of Defense funds, a substantial and specific danger to public health or safety, or a violation of law related to a Department of Defense contract (including the competition for or negotiation of a contract) or grant.” Obviously, this new whistleblower protection encourages defense contractor employees to come forward if they have knowledge of such misconduct.

The new whistleblower law is intended to protect all defense contract employees to come forward in good faith so that they need not fear reprisal if they do so. If the employee who blows the whistle on contractor fraud is retaliated against, the affected employee may file a complaint with the Inspector General of the Agency and unless the complaint is determined to be frivolous, the Inspector General will conduct an investigation. If the employee is not satisfied with the Inspector General’s handling of the complaint, the employee may bring an action in federal court and is entitled to a jury trial. If the complainant is retaliated against for bringing legitimate good faith complaints of government contract fraud out in the open, then his or her remedies would include reinstatement, back pay, compensatory damages, attorneys fees and costs.

This new law is a giant step forward when it comes to protecting whistleblowers who are brave enough to come forward and expose defense contractor misconduct. By protecting such employees from retaliation, the law is intended to encourage their coming forward to expose waste, fraud and mismanagement. If the employee who does come forward is retaliated against as a result of blowing the whistle, this law is intended to make sure that they will be fully compensated for any damages sustained as a result of such retaliation including reinstatement of the job taken from them or reimbursement for wages and benefits lost as a result of any retaliation. As stated, the employee is also entitled to have his or her attorneys fees and costs paid should they be retaliated against for blowing the whistle.

This is an excellent piece of legislation which is good for the country and hopefully will help to reduce defense contractor fraud and abuse.

The "Big Dig" collapse has led to a $458 million settlement by contractors responsible for the Boston Central Artery/Tunnel highway project. Whistleblowers using the federal and state False Claims Acts helped bring about that result.

Of the $458 million settlement, $23 million is being paid to the United States under the federal False Claims Act, and $40 million will go to Massachusetts under its state False Claims Act, as a result of qui tam whistleblower litigation. (As we have written about extensively on this whistleblower lawyer blog, more and more states are enacting state versions of the federal False Claims Act to recover damages for fraud against the government. Private citizen whistleblowers or "relators" can receive up to 25 or 30% of the recovery.)

Congratulations to Massachusetts and the Justice Department for concluding this settlement.

This whistleblower lawyer blog reported earlier that the New Jersey Assembly had passed the New Jersey False Claims Act, which provides incentives to whistleblowers ("relators") to expose fraud affecting state funds--much like the federal False Claims Act does.

Governor Jon Corzine signed the new bill into law yesterday, which makes New Jersey the 20th state to enact a state False Claims Act with qui tam whistleblower provisions similar to those of the federal False Claims Act. (Click here for a detailed explanation of the False Claims Act and why states are passing their own False Claims Acts.)

New Jersey's citizens should be proud that their taxpayer dollars have the additional protection of the new statute. Congratulations to all who accomplished this result!

Some of the many types of health care fraud that this whistleblower lawyer blog has followed involves "durable medical equipment" (DME). The sale of wheelchairs, walkers, oxygen supplies and equipment, hospital beds, orthotics, prosthetics, and various medical devices is yet another opportunity for dishonest suppliers to defraud taxpayers.

This week, the Centers for Medicare & Medicaid Services (CMS) announced an initiative designed to improve care, save $1 billion annually, and lower Medicare beneficiaries’ out-of-pocket costs--by promoting competition in the sale of durable medical equipment.

Seventy new areas across the country have been added to the second phase of a competitive bidding program. One goal is to "prevent unscrupulous suppliers from participating in Medicare."

According to CMS Acting Administrator Kerry Weems,“Competitive bidding means that Medicare beneficiaries will have access to these products at substantially lower costs.” Mr Weems noted that “[s]ince all successful bidders will be required to meet quality standards and be accredited by Medicare, people with Medicare in these 70 new areas can be assured of access, low prices and high quality."

The new program is also intended to provide another layer of protection against Medicare fraud. As our whistleblower clients and other whistleblower attorneys know too well, fraud in health care is bleeding our nation's precious health care resources--and cost taxpayers millions each year.

We congratulate CMS for its ongoing efforts to to root out health care fraud.

The wave of new state False Claims Acts with qui tam whistleblower provisions has been a frequent topic of this whistleblower lawyer blog. In 2007, New York, Georgia, and Oklahoma joined the 16 other states that have enacted versions of the federal False Claims Act, the government's primary weapon for fighting fraud against taxpayers.

Today, New Jersey's Assembly unanimously passed the New Jersey State False Claims Act, which upon signature by the Governor will make New Jersey the 20th state to have a state version of the venerable qui tam whistleblower statute.

We congratulate New Jersey for taking the prudent action of passing a state False Claims Act. As we have written about extensively, Congress through the Deficit Reduction Act of 2005 has created financial incentives for states that pass such qui tam whistleblower laws that are at least as effective as the federal False Claims Act.

The New Jersey False Claims Act expands on the federal Act. It also includes criminal provisions as well as civil liability for treble damages and civil penalties. The text of the Act passed today is reprinted below:

Continue reading "False Claims Act Passed in New Jersey Continues Trend of New State Qui Tam Whistleblower Statutes" »

2007 has been a most significant year for whistleblowers. The whistleblower lawyer blog attorneys look back on some of the milestones:

1. As soon as Congress authorized the first meaningful IRS Whistleblower Rewards Program to pay tax whistleblowers 15-30% of IRS recoveries from those who violate the tax laws by statue effective on December 20, 2006, beginning in January our whistleblower lawyers submitted some of the first IRS Whistleblower claims in the nation under the new law. Our IRS Whistleblower cases have continued to grow throughout the year.

2. Our IRS whistleblower submissions have led to criminal and civil investigations over tax cheating, and our whistleblower clients are in a position to receive 15-30% of the amount of collected proceeds (including penalties, interest, additions to tax, and additional amounts) recovered by the IRS.

3. This Spring, legislative officials requested that one of our whistleblower lawyer blog co-authors help draft a state False Claims Act for Georgia, and then invited him as the only private attorney to testify at the legislative hearings to explain the federal False Claims Act, and how the new state False Claims Act will operate. The new Georgia State False Medicaid Claims Act was signed into law on May 24, 2007, and early results show that it already has been effective in uncovering and stopping Medicaid fraud.

Participating in the signing ceremony with Governor Sonny Perdue were (shown above from left to right) Carrie Downing, Director of Legislative and External Affairs of the Georgia Department of Community Health; Dr. Rhonda Medows, Commissioner of the Georgia Department of Community Health; Inspector General Doug Colburn; Governor Perdue; Rep. Edward Lindsey, sponsor of the State False Medicaid Claims Act; whistleblower lawyer blog author Michael A. Sullivan of Finch McCranie, LLP; and Philip Consuegra, Legislative Assistant to Rep. Lindsey.

4. As the new IRS Whistleblower Program took shape during 2007, our whistleblower lawyer blog followed each development to educate the public and other attorneys about the new IRS Whistleblower Rewards.

5. At a national conference sponsored by Taxpayers Against Fraud in September, whistleblower lawyer blog author Michael A. Sullivan joined IRS Whistleblower Office Director Stephen Whitlock, Professor Dennis Ventry, and fellow IRS whistleblower attorneys Paul Scott and Erika Kelton for a panel discussion to explain how the new IRS Whistleblower Program will operate.

6. To educate other professionals about developments with the False Claims Act and the wave of new state False Claims Acts, whistleblower lawyer blog attorneys published articles in journals that included Compliance Today, a publication of the Health Care Compliance Association. Our whistleblower lawyer blog attorneys also chaired the Whistleblower Law Symposium, and were invited to lead panel discussions and give presentations at the Southeastern Health Care Fraud Conference and various other conferences.

7. Of course, like other whistleblower law attorneys, our firm has continued to represent whistleblowers to recover damages for fraud in health care programs inclluding Medicare and Medicaid, Hurricane Katrina federal disaster relief, government procurement, and other matters affecting federal and state tax dollars.

We are continually inspired by our clients for their commitment to honesty and integrity in the use of government funds. We look forward to another successful year keeping you informed with this whistleblower lawyer blog!

At a conference on False Claims Act Litigation on November 30, attorneys representing the government, relators or whistleblowers, and defendants gathered to discuss whistleblower law issues. The conference was organized by the law firm of Balch & Bingham LLP.

This whistleblower lawyer blog writer had the pleasure of appearing on a panel with the Chief of the Civil Division of the U.S. Attorney's Office in Atlanta, Amy Berne, and with Balch & Bingham's John Markus.

Amy Berne opened with an overview of how the government handles False Claims Act cases, and answered many questions about what affects the government's assessment of an FCA case. It is always informative to be able to ask the chief prosecutor what influences her decisions.

John Markus offered a very interesting perspective on compliance issues. From 2004 to 2007, John served as Executive Vice President and Chief Compliance Officer for HealthSouth Corporation, where he directed the development of a regulatory compliance program as part of a comprehensive restructuring initiative. He also negotiated and directed the implementation of Corporate Integrity Agreement with the Office of Inspector General for the Department of Health and Human Services.

This whistleblower lawyer spoke on some of the reasons whistleblowers come forward and report fraud; goals in representing whistleblowers or relators; and new legal developments such as the wave of new State False Claims Acts, and proposed dramatic changes to the federal False Claims Act.

I appreciated the opportunity to join this group of accomplished lawyers, and thank Balch & Bingham's Mike Bowers, Rich Saunders, John Markus, and Christopher S. Anulewicz for organizing the seminar.

Two important topics of this whistleblower lawyer blog are addressed in a recent Government Accounting Office (GAO) Report on tax cheating by Medicaid providers. The Report shows the wisdom of the new IRS Whistleblower Program, which fills a "gap" in the coverage of the major whistleblower statute, the False Claims Act.

GAO reports that thousands of Medicaid providers collect large amounts of federal dollars each year, while cheating the government by failing to pay taxes owed--usually payroll taxes and personal income taxes. In testimony before the Permanent Subcommittee on Investigations, Senate Committee on Homeland Security and Governmental Affairs, GAO's Gregory D. Kutz, described these abuses.

These tax abuses reportedly included:

• The owner of a chain of nursing homes, who owed more than $14 million in taxes, while having a $2 million home with crystal chandeliers, porcelain china, and Oriental rugs.

• The owners of a hospital, who owed $5 million in payroll taxes, but who bought a vacation home worth $1 million.

• A medical-clinic owner, who owed more than $1 million to the IRS, had a $4 million house, luxury vehicles, and a pleasure boat.

According to the Report, "[r]ather than fulfill their role as 'trustees' of federal payroll tax funds and forward them to IRS, these providers diverted the money for other purposes. Willful failure to remit payroll taxes is a felony under U.S. law. Individuals associated with some of these providers diverted the payroll tax money for their own benefit or to help fund their businesses. Many of these individuals accumulated substantial assets, including million-dollar houses and luxury vehicles, while failing to pay their federal taxes. In addition, some case studies involved businesses that were sanctioned for substandard care of their patients. Despite their abusive and related criminal activity, these 25 providers received Medicaid payments ranging from about $100,000 to about $39 million in fiscal year 2006." (http://www.gao.gov/new.items/d08239t.pdf, at 2).

The new IRS Whistleblower Program may provide a means to stop this abuse. Authorized by Congress in December 2006 (with the new regulations due to be issued by December 20, 2007), the new IRS Whistleblower Program established an enforceable right for "whistleblowers" or informants to receive 15-30% of money recovered by the IRS, including interest and penalties.

The federal False Claims Act, which was invigorated in 1986 with provisions that have made it the government's "primary" weapon against fraud, allows rewards for whistleblowers who report Medicare fraud, Medicaid fraud, and most other types of fraud and false claims against the federal government. The False Claims Act expressly does not apply to IRS obligations, however. Thus, the new IRS Whistleblower Program allows whistleblowers to help stop tax fraud and evasion by Medicaid providers, and to receive a share of the recovery.

Our whistleblower attorneys will continue to work both with the IRS and with the Department of Justice in representing whistleblowers who bring such fraud to light.

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.

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.

This week, the United States Supreme Court agreed to hear a False Claims Act whistleblower case filed against the General Motors Corporation and its former division, Allison Engine Company. The alleged fraud concerns subcontracts for building parts for the U. S. Navy’s guided missile destroyers. Each of the 50 destroyers in question costs the taxpayers over $1 billion.

At issue in this case is an argument being made by the defendants that the whistleblower and the government cannot attack the alleged fraud scheme under the False Claims Act based on the failure of the subcontractor (Allison Engine Company) to personally present claims for payment to the United States government. (In short, even if fraud occurred, the subcontractor cannot be sued under the False Claims Act because the subcontractor did not itself present false claims to the federal government.) This rule, known as the “Totten” rule, was first articulated by the now Chief Justice of the Supreme Court John Roberts when he previously served on the U. S. Court of Appeals for the D. C. Circuit. The “Totten” rule allows subcontractors to escape liability under the False Claims Act if they were not the actual party who formally presented the claim to the government for payment.

In the case which the Supreme Court has agreed to review, the lower Appeals Court supported the whistleblower’s claims and explicitly rejected the “Totten” rule. The Court of Appeals reasoned that the subcontractor’s liability should not depend on a technical presentment of a claim to the government, but whether government money was used to pay a false and fraudulent claim for payment on the contract.

Obviously, this technicality is being used by defendants in many cases where the subcontractor does not actually itself submit a false claim for payment to the government, but instead “causes" it to be submitted (usually by the general contractor), but still ends up collecting substantial taxpayer monies. Obviously, the central focus of the False Claims Act is not only to hold liable not only those who submit a false claim to the government, but also anyone who causes such a false claim to be submitted with the intent that the government be defrauded. Obviously, the “Totten” rule needs to be overruled by the Supreme Court but given the fact that Chief Justice Roberts issued the “Totten” opinion when he was an Appellate Court Judge himself, court observers are mixed as to whether the Supreme Court will reject the rule and uphold the intent of the False Claims Act, or whether it will side with defendants and make it easier to escape liability for fraudulent conduct on technical grounds.

We have already written about the new amendments recently proposed to the False Claims Act in the Senate that would eliminate the Totten defense, and restore the False Claims Act to its original intended result in other ways as well. The “Totten” rule is bad law and bad public policy. If one causes a false claim to be submitted, this should be sufficient; otherwise form is elevated over substance. This whistleblower firm hopes that common sense will prevail in the Supreme Court.

From time to time on this whistleblower blog we report cases of significance involving successful whistleblower claims filed under the federal False Claims Act. We read about such a case today in the news involving a $28 million settlement with National Air Cargo. It appears that the government determined that National Air Cargo had billed the government $4.4 million for various military shipments delivered by that company between the calendar years 1999 and 2005. The false claim was that National Air Cargo had billed the government for higher air rates rather than the actual ground deliveries made. National Air Cargo also claimed that deliveries were made sooner than they actually were which served as a pretext for the higher shipment rates. The government’s investigation focused on shipments to military bases within the United States according to the government’s Press Release.
We read about such a case today in the news involving a $28 million settlement with National Air Cargo. It appears that the government determined that National Air Cargo had billed the government $4.4 million for various military shipments delivered by that company between the calendar years 1999 and 2005. The false claim was that National Air Cargo had billed the government for higher air rates rather than the actual ground deliveries made. National Air Cargo also claimed that deliveries were made sooner than they actually were which served as a pretext for the higher shipment rates. The government’s investigation focused on shipments to military bases within the United States according to the government’s Press Release.

As a result of the scheme which was reported to the government by a whistleblower, National Air Cargo agreed to pay $4.4 million in restitution, a fine double that amount, a civil forfeiture fine in the amount of $7.4 million and $7.3 million to settle a civil lawsuit brought by the whistleblower. The whistleblower’s identity was withheld by the Court apparently under a Confidentiality Agreement.

This case is yet another in the growing and long list of cases where government contractors have been proven to have submitted false claims for reimbursement. Once again, the False Claims Act works as was intended by Congress. It exposes the fraud, punishes the wrongdoer, and rewards the whistleblower for bringing forth the truth. Regrettably, fraud cases continue to occur at an ever increasing rate, but the good news is that occasionally justice is done. The False Claims Act remains the most valuable tool in the government’s arsenal to combat fraud perpetrated against it.

Our whistleblower lawyer blog attorneys have written extensively about Georgia’s enactment of the new State False Medicaid Claims Act, a new whistleblower law that an attorney with our law firm helped enact. This qui tam whistleblower law has applicability to anyone who files a false or fraudulent claim for reimbursement with the State’s Medicaid program.

A classic example of this would be filing false claims for reimbursement for unnecessary and/or unauthorized laboratory tests. If a health care provider submits false or fraudulent claims for reimbursement under the State Medicaid program for performing lab tests which are not properly authorized by a medical physician, or do not otherwise meet Medicaid standards for reimbursement, such a submission could constitute a false claim against the Medicaid program, thus entitling any whistleblower reporting that claim to a reward for reporting Medicaid fraud. One such case, recently filed by the State of Massachusetts, indicates just how expensive such claims may be for the taxpayer.

Last week, in Boston, Boston Clinical Laboratories, Inc. was alleged to have submitted 66,000 false Medicaid claims for urine drug screens in circumstances where they were not ordered by an authorized prescriber or were ordered for non-medical purposes. According to allegations made by the Massachusetts Attorney General, many of these laboratory urine screens were to monitor sobriety tests for the individuals and were not approved for medical reasons. Under state regulations, eligible Medicaid claims are limited to laboratory services prescribed by a physician and must serve a medically necessary purpose. Court ordered and Social Service Agency drug testing, as well as testing for resident sobriety in out-patient treatment facilities, are not covered under the Medicaid program.

While we do not know whether the allegations against Boston Clinical Laboratories, Inc. are true, the fact remains that the case indicates just how expensive unauthorized laboratory tests could be for taxpayers. If laboratories are submitting false claims for reimbursement under the State Medicaid program and if the claims being submitted are not properly approved or authorized, this could constitute a claim under the applicable State False Claims Act for which a whistleblower/informant could receive a reward.

Procedurally, a False Medicaid Claims Act Complaint alleging Medicaid fraud must be filed under seal. The State Attorney General is then given adequate opportunity to investigate the case to determine whether the State wishes to intervene in the lawsuit and take it over as a case that the Attorney General will prosecute. If the State intervenes, the whistleblower is still entitled to a recovery out of any eventual settlement or judgment obtained. In those cases in which the State does not intervene, the whistleblower and his or her counsel can proceed nonetheless in the name of the State and receive an even greater percentage of any recovery assuming fraud is demonstrated. In any event, obviously, fraud needs to be exposed in whatever form it takes.

The claims filed against Boston Clinical Laboratories, Inc. represent merely one type of claim that can be pursued under a State’s False Claims Act. Because Medicaid fraud is such a national problem one must consider just how significant false laboratory claim are in reality. The problem could be huge particularly if only one provider can submit 66,000 claims just for urine screens!

To assist those who want to know more details about the nation's primary whistleblower law, the False Claims Act, as well as the wave of new state qui tam whistleblower laws that mirror the False Claims Act, the whistleblower lawyer blog attorneys are pleased to present this detailed article. A version of this article by whistleblower lawyer blog author Michael A. Sullivan has just been published in the October 2007 Georgia Bar Journal, and is reprinted here in updated form with permission of the Bar Journal.

For ease of reading, we have divided this detailed article into six parts:

1. Introduction: The False Claims Act and How It Has Inspired a Wave of State Qui Tam Whistleblower Laws

2. The Basics: The False Claims Act and the Growing Number of State False Claims Acts With Qui Tam Whistleblower Provisions

3. Background and History of the False Claims Act

4. The Modern False Claims Act--How It Works

5. The Successes of the Modern False Claims Act--and How They Have Prompted a Wave of State False Claims Acts With Qui Tam Whistleblower Provisions

6. The State False Claims Acts: Qui Tam Whistleblower Laws That Seek to Repeat the Successes of the Federal False Claims Act

We hope that you find useful and informative our article on the False Claims Act and the new state False Claims Acts. If you have any questions, please feel free to call us at 800-228-9159, or email us through our website link here.

This article is reprinted with permission of the Georgia Bar Journal.

Copyright © 2007 by Finch McCranie, LLP

This Part 6 is the final installment by whistleblower lawyer blog of an article explaining why the major qui tam whistleblower statutes, the federal False Claims Act, has led to a wave of new state False Claims Acts. It is part of a recently published article by whistleblower lawyer blog author Michael A. Sullivan, and this article is reprinted with the permission of the Georgia Bar Journal.

This Part 6 describes the new state whistleblower laws and how states have fared to date in recovering taxpayer money wrongfully through fraud and false claims. It also discusses some interesting new approaches that some states have taken in improving on the federal False Claims Act with their own statutes.

V. Other States’ Experiences With Their Own False Claims Acts

As noted, in 2007 Georgia, New York, and Oklahoma joined the 16 other states that have a False Claims statute, and at least a dozen other states are considering similar laws. [58] The financial incentives of the Deficit Reduction Act of 2005 have not only prompted states that had lacked False Claims statutes to enact them, but also have caused many states wishing to qualify for the additional funds to amend their existing False Claims statutes.

In essence, while states may enact “tougher” or more comprehensive laws than the federal False Claims Act, states with “weaker” or less effective laws—as judged by the standards of the Deficit Reduction Act—will not qualify for the additional funds. [59]

Seven of the first ten states whose statutes were scrutinized by the Office of Inspector General (OIG) quickly learned this lesson when OIG disapproved their state statutes. [60] These included California (which lacked a minimum penalty), Florida (which omitted “fraudulent” from its definition of claims), Indiana (which did not make defendants liable for “deliberate ignorance” and “reckless disregard”), Louisiana (which did not permit the state to intervene in cases, set too low a percentage for whistleblowers to recover, and set no minimum penalty), Michigan (which omitted penalties and liability for decreasing or avoiding an obligation to pay the government, i.e., a “reverse false claim”), Nevada (which had a statute of limitations too short and a minimum penalty too low), and Texas (which did not permit the whistleblower to litigate the case if the state did not, and which provided for lower percentage shares to whistleblowers and lower penalties). Most of these states have gone back to the drawing board to correct these deficiencies.

In sum, the Deficit Reduction Act has set minimum standards for state False Claims Acts for states wishing to receive these additional funds. In plain English, the state laws must protect at least Medicaid funds, and they must be at least as effective as the federal False Claims Act, especially in rewarding and facilitating qui tam actions for false or fraudulent claims, with damages and penalties no less than those under the federal Act. [61]

A. How Other States’ False Claims Acts Compare to the New Georgia Statute

Many state False Claims laws have been in transition in 2007. States whose laws have been “disapproved” by OIG have begun to amend their statutes to meet the requirements for obtaining the additional funds under the Deficit Reduction Act, as Florida and Texas already have done in 2007. While these laws are in flux, some significant differences from Georgia’s new State False Medicaid Claims Act are likely to remain.

First, the majority of state False Claims statutes protect the state’s funds generally, rather than protecting only state Medicaid funds, as Georgia’s new State False Medicaid Claims Act is limited. Just as the federal False Claims Act is not limited to health care fraud, but encompasses fraud against the government generally (except for Internal Revenue violations, which are now covered by the new IRS Whistleblower program), [62] many states have used these statutes to protect public funds in general from fraud. Those states include California, Delaware, Florida, Hawaii, Illinois, Indiana, Massachusetts, Montana, Nevada, Oklahoma, Virginia, and Tennessee.

In addition, several states—including Hawaii, Massachusetts, Nevada and Tennessee— have expanded on the federal Act’s four commonly-used theories of liability listed above. These state laws create a new legal theory for holding liable a person or entity who is the “beneficiary” of the “inadvertent submission” of a false or fraudulent claim, if that person or entity fails to disclose (and presumably correct) the false claim after discovering it. [63]

Moreover, Tennessee’s False Claims Act reaches beyond false or fraudulent “claims” and imposes liability for false or fraudulent “conduct” that apparently does not necessarily involve “claims” submitted to the state. This state law adds a new category of liability for “any false or fraudulent conduct, representation, or practice in order to procure anything of value directly or indirectly from the state or any political subdivision.” [64]

Because states have this leeway under the Deficit Reduction Act to pass laws that may be “tougher” or more “effective” than the federal Act, some states have set the statutory penalties higher than the federal level of $5,500 to $11,000 per claim. For instance, under the New York law enacted in 2007, penalties range from $6,000 to $12,000 for each false or fraudulent claim. [65]

Some other states authorize a higher percentage of the state’s recovery that a relator (whistleblower) may receive, instead of the percentages that the federal False Claims Act authorizes (which the Georgia statute also uses): 15-25% of the recovery in cases in which the government intervenes, and 25-30% in cases in which the government does not intervene. For example, Nevada’s percentages are 15-33% in intervened cases, and 25-50% in non-intervened cases; Tennessee’s are 25-33% in intervened cases and 35-50% in non-intervened cases; and Montana’s range from 15-50%. [66]

B. Notable Results Obtained by States Under Their False Claim Statutes

Most qui tam cases filed under the state False Claims statutes have 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. [67] Each state that enacts a False Claims Act that meets the minimum requirements is in a position to join the process.

Most of the state settlements have come from “piggy backing” on federal law enforcement efforts and from joining in global settlements. [68] Experience with some of the newer state statutes is too recent to evaluate, but many states have reported the desire for more resources to develop such cases. [69]

Texas’s experience is worth special mention because the Texas Attorney General’s Office has been especially effective in pursuing cases involving false claims in health care. Texas’s statute has allowed it to recover more than $216 million in health care fraud cases since 1999.

Because the Texas Attorney General’s Office has been a leader in recovering damages for health care fraud by using the Texas statute, it was perhaps ironic that OIG initially “disapproved” the highly successful Texas law before it was amended in 2007 to comply with the Deficit Reduction Act standards. [70]

California, whose statute is not limited to health care, recovered $43.1 million in 2005 in a state False Claims action alleging fraud in the installation and monitoring of heating and cooling equipment in San Francisco schools. [71] In 2001, California recovered $31.9 million in an action alleging fraudulent billing during construction of the Los Angeles subway system. [72] Similarly, California recovered $30 million in 2000 in a matter alleging the knowing sale of defective computers to the state and political subdivisions. In 1998, California recovered $187 million in an action alleging the improper retention of unclaimed municipal bonds. [73]

We do not know with any precision the dollar amount of fraud that affects any particular state's government spending, or how much of that fraud can be prevented through effective use of a state False Claims Act. For now, New York, Oklahoma, and Georgia have joined the list of states that will see how much of at least their Medicaid fraud losses can be recovered through the new state False Claims Acts.

Conclusion

We hope that our article on the False Claims Act and the new state False Claims Acts has been useful. If you would like, please feel free to call us to discuss any questions you may have at 800-228-9159, or email us through our website link here (or directly to msullivan@finchmccranie.com.)

Continue reading "Part 6: The State False Claims Acts: Qui Tam Whistleblower Laws That Seek to Repeat the Successes of the Federal False Claims Act " »

This is Part 5 of 6 by whistleblower lawyer blog of a detailed article for those wishing to know more about the principal qui tam whistleblower statutes, the federal False Claims Act and the new state False Claims Acts. It is part of a recently published article by whistleblower lawyer blog author Michael A. Sullivan, and this article is reprinted with the permission of the Georgia Bar Journal.

This Part 5 discusses the dramatic successes of the federal False Claims Act since its 1986 Amendments in recovering taxpayers' money wrongfully obtained by fraud and false claims.

IV. The Trend of Recent Recoveries Under the False Claims Act

Over the past two decades since the modern False Claims Act was established through the 1986 Amendments, the federal government’s recoveries of dollars have grown astronomically, especially in health care cases. The Department of Justice statistics [52] 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.

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 came from qui tam cases. Similarly, in 2005, of the government’s total recovery of $1.4 billion, $1.1 billion of that amount came from qui tam cases.

In 2006, the Justice Department recovered a record of more than $3.1 billion in settlements and judgments for fraud and false claims. Of this record $3.1 billion in recoveries, 72% came from the health care field; 20% from defense; and 8% from other sources. Health care alone accounted for $2.2 billion in settlements and judgments, which included a $920 million settlement with Tenet Healthcare Corporation, the country’s second-largest hospital chain. Defense procurement fraud amounted to $609 million in recoveries, which included a $565 million settlement with the Boeing Company.

It is interesting that, while defense procurement fraud both inspired the Act and was the largest source of recoveries at the time of the 1986 Amendments, health care cases now lead in recoveries, as health care costs have grown as a percentage of the federal budget. By industry, in 1987 the defense industry was the largest source of cases under the False Claims Act. [53] The health care industry accounted for only 12% of cases under the False Claims Act in 1987; that percentage grew to 54% by 1997. [54]

Many health care fraud cases have addressed over-billing or up-coding, fraudulent cost reporting, billing for services not provided, and failure to furnish the required “quality of care.” [55] The breakdown of the Department of Justice statistics shows that government recoveries in the health care field have grown from less than $2 million in 1988 to more than $1.8 billion in 2003. Although the amounts recovered rise and fall each year, from 2001–2006 government recoveries from the health care field exceeded $1 billion in five out of six years.

The trend has continued in 2007, as the Office of Inspector General of the Department of Health and Human Services recently announced that it expects $2.9 billion in recoveries for Medicare, Medicaid, and other federal health and human services programs for the first half of fiscal year 2007. [56]

In short, the health care industry now consistently accounts for the vast majority of settlements and judgments obtained by the federal government for fraud and false claims.

Continue reading "Part 5: The False Claims Act's Successes--and How They Have Prompted a Wave of State False Claims Acts With Qui Tam Whistleblower Provisions" »

This Part 4 by whistleblower lawyer blog is a continuation of a detailed article for those wishing to know the specifics of the principal qui tam whistleblower statutes, the federal False Claims Act and the new state False Claims Acts. It is taken from a recently published article by whistleblower lawyer blog author Michael A. Sullivan, and it is reprinted with the permission of the Georgia Bar Journal.

This Part 4 focuses on the "modern" False Claims Act--since the 1986 Amendments. Before considering it, please note that, in September 2007, a bipartisan group of Senators introduced the "False Claims Act Correction Act," a bill to further "modernize" the False Claims Act with substantial improvements intended to restore the Act to Congress' original intentions. We at whistleblower lawyer blog will provide regular updates as that bill is considered by Congress.

III. Overview of How the Modern False Claims Act Works (with Comparisons to State False Claims Acts, With the New Georgia State False Medicaid Claims Act as a Primary Example)

A. Conduct Prohibited

The federal False Claims Act imposes civil liability under several different theories, only four of which are generally used:

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. [30] “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. [31]

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.” [32]

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. [33]

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.” [34] 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.

Georgia Act compared: The same bases of liability are set forth in new section 49-4-168.1(a), with regard to the Georgia Medicaid program. “Claim” is also broadly defined in the Georgia statute in section 49-4-168(1). In fact, the Georgia statute’s definition of “claim” was intended by the legislature to eliminate a point of dispute about the federal statute [35] by making clear that it applies to “claims” submitted not only to the government, but also to other persons or entities, as long as the Georgia Medicaid program provides any portion of the money or property at issue.

The federal False Claims Act also creates a cause of action for damages for retaliation against employees who assist in the investigation and prosecution of False Claims Act cases. [36] This cause of action belongs to the employee alone, and the government does not share in any recovery for retaliation.

Georgia Act compared: New section 49-4-168.4 establishes a similar right to pursue a claim for retaliation in employment.

Continue reading "Part 4: The Modern False Claims Act--How It Works" »

This is Part 2 by whistleblower lawyer blog of a detailed overview of the federal False Claims Act and the new state False Claims Acts with qui tam whistleblower provisions. It is based on an article by whistleblower lawyer blog author Michael A. Sullivan, and is reprinted with permission of the Georgia Bar Journal.

This Part 2 discusses the sound policy reasons underlying the False Claims Act.

I. Why A “False Claims Act”?

Fraud is perhaps so pervasive and, therefore, costly to the Government due to a lack of deterrence. GAO concluded in its 1981 study that most fraud goes undetected due to the failure of Governmental agencies to effectively ensure accountability on the part of program recipients and Government contractors. The study states:

For those who are caught committing fraud, the chances of being prosecuted and eventually going to jail are slim. . . . The sad truth is that crime against the Government often does pay. [5]

Fraud—and allegations of fraud—plague government spending at every level. Today, as the federal and state governments struggle to fund the billions of dollars spent annually on health care through Medicare and Medicaid; national security and local security efforts; Hurricane Katrina and other disaster relief; and government grants and programs of every description, there is no shortage of opportunities for fraud against the public fisc.

The federal False Claims Act has been the federal government’s “primary” weapon to recover losses from those who defraud it. [6] The Act not only authorizes the government to pursue actions for treble damages and penalties, but also empowers and provides incentives to private citizens to file suit on the government’s behalf as “qui tam relators.” Over the past 20 years, recoveries for the federal government have grown dramatically since Congress amended the Act in 1986 to encourage greater use of the qui tam provisions, as part of a “coordinated effort of both the [g]overnment and the citizenry [to] decrease this wave of defrauding public funds.” [7]

The federal False Claims Act has been successful in recovering billions of dollars, increasingly through qui tam lawsuits brought by private citizens. In light of the federal Act’s successes, Congress in the Deficit Reduction Act of 2005 [8] created a large financial “carrot” for states that adopt state versions of the False Claims Act. Any state that passes its own “False Claims” statute with qui tam or whistleblower provisions that are at least as effective as those of the federal Act becomes eligible for a 10% increase in its share of Medicaid fraud recoveries. [9]

Thus, Georgia’s and other states' impetus in enacting these new state False Claims Acts in 2007 was this incentive of more dollars. In 2007 to date, Georgia, New York, and Oklahoma have joined the 16 other states that have enacted some version of a “False Claims” statute. [10] At least a dozen other states [11] are considering enacting similar statutes of their own so that they, too, qualify for increased funds under the Deficit Reduction Act.

Continue reading "Part 2: The False Claims Act and the Growing Number of State False Claims Acts With Qui Tam Whistleblower Provisions--the Basics" »

We at whistleblower lawyer blog hope this detailed article assists those interested in the federal False Claims Act and the new state False Claims Acts with qui tam whistleblower provisions. A version of this article by whistleblower lawyer blog author Michael A. Sullivan [1] has just been published in the October 2007 Georgia Bar Journal. For ease of reading, we have divided the article in six parts--this is Part 1.

The federal False Claims Act [2] has inspired a wave of new state False Claims Acts with qui tam whistleblower provisions, as the New York False Claims Act, the Oklahoma Medicaid False Claims Act, and the Georgia State False Medicaid Claims Act [3] in 2007 have joined sixteen other state laws that allow qui tam whistleblowers to pursue cases based on fraud and false claims that rob taxpayers' dollars.

These new state qui tam whistleblower laws are critical to stopping fraud against taxpayers. For example, in April 2007, the Georgia Legislature enacted a state version of this important—but commonly misunderstood—federal law, the False Claims Act. The new “State False Medicaid Claims Act” mirrors the federal False Claims Act in important respects, but differs in some significant ways.

Both the state and federal Acts create civil liability for treble damages and potentially huge penalties for fraud and false claims submitted to the government. Both authorize “qui tam” or “whistleblower” lawsuits by private persons, who may share in the government’s recovery. Both have unique procedural requirements that are foreign to most lawyers. Like the federal whistleblower law, most state qui tam whistleblower laws protect all state government funds. A few states such as Georgia have opted for the narrower reach of the Georgia Act, which applies only to fraud or false claims affecting the Georgia Medicaid Program, rather than all State programs.

This article explains how the new state False Claims Acts work, which itself requires an explanation of the unique and sometimes perplexing federal False Claims Act on which the state Acts are based. This article summarizes the background of the federal False Claims Act, outlines how it operates, and discusses the Act’s increasing use to combat fraud directed at public funds. This article also highlights the important differences between the state and federal Acts, using Georgia's as an example. Finally, this article also compares other states’ False Claims Acts and discusses some of the recoveries that other states have obtained to date.

The new Georgia “State False Medical Claims Act” became law on May 24, 2007. Participating in the signing ceremony with Governor Sonny Perdue were (shown above from left to right) Carrie Downing, Director of Legislative and External Affairs of the Georgia Department of Community Health; Dr. Rhonda Medows, Commissioner of the Georgia Department of Community Health; Inspector General Doug Colburn; Governor Perdue; Rep. Edward Lindsey, sponsor of the State False Medicaid Claims Act; whistleblower lawyer blog author Michael A. Sullivan of Finch McCranie, LLP; and Philip Consuegra, Legislative Assistant to Rep. Lindsey.

Footnotes:
1 Michael A. Sullivan has worked with the False Claims Act since the late 1980s and has both defended and prosecuted cases under the False Claims Act. He is the co-author of www.whistleblowerlawyerblog.com. At the request of Georgia legislators, Mr. Sullivan provided input in the drafting of the new Georgia State False Medicaid Claims Act and testified in each of those legislative hearings to explain the False Claims Act. His practice includes whistleblower litigation under the False Claims Act and the IRS Whistleblower Program, serious injury litigation, and white collar criminal defense. He is a graduate of the University of North Carolina and Vanderbilt Law School, where he was Senior Articles Editor of the Vanderbilt Law Review. He clerked for U.S. District Judge Marvin H. Shoob in Atlanta from 1984-86. From 1995-98, he served as a federal prosecutor in the Independent Counsel investigation of the Department of Housing and Urban Development, including the prosecution of a former Secretary of the Interior. His most recent article appears in the Health Care Compliance Association’s September 2007 edition of Compliance Today, entitled “New State ‘False Claims Acts’: An Executive Summary for Health Care Compliance Professionals.” He also appeared with the Director of the new IRS Whistleblower Office in discussing and explaining the new “IRS Whistleblower Program” in September 2007 at the Taxpayers Against Fraud Annual Conference in Washington.

2 The federal False Claims Act is at 31 U.S.C. §§ 3729-33.

3 The new Georgia State False Medicaid Claims Act is codified at O.C.G.A. §§ 49-4-168 to 49-4-168.6.

Last week, the United States Department of Justice announced that Bristol-Meyers Squibb (BMS) had entered into a settlement agreement to pay more than $515 million to resolve allegations of illegal drug marketing and pricing. This is yet another example where Big Pharma has attempted to gouge the government to increase profits, at the public’s expense. The allegations made by the government, regrettably, are all too familiar and have occurred in many other cases of a similar nature.

The first thing the government alleged was that from 2000 through 2003 BMS knowingly and willfully paid illegal renumeration to physicians and other healthcare providers to induce them to purchase BMS drugs. According to the government, BMS paid illegal renumeration in the form of excessive consulting fees and expenses to physicians in various sham consulting programs, etc. Some expenses involved travel to luxurious resorts. Second, the government alleged that from 2002 through the end of 2005 BMS knowing promoted the use of Abilify, an anti-psychotic drug, for pediatric use and to treat dementia related psychosis, both of which are “off label” uses. The Food and Drug Administration never approved the use of Abilify for children and adolescents or for geriatric patients suffering from dementia related psychosis. Indeed, the FDA had mandated that Abilify carry a black box warning concerning its use in dementia related psychosis. Nonetheless, according to the government, BMS directed its sales force to specifically call on pediatric specialists and nursing homes in order to illegally promote its product.

The third allegation of the government’s complaints against BMS was that it maintained fraudulent and inflated prices on a wide assortment of oncology and generic drug products with the knowledge that bills to federal healthcare programs were based on those fraudulent prices. The government specifically alleged that BMS knowingly misreported its best price for the anti-depression drug Scrzone.

Out of the $515 million settlement, $50 million will be paid to seven different whistleblowers. Also, BMS will be required to enter into a Corporation Integrity Agreement which will require the company to do what it should have done all along, that is report accurate average sales prices and accurate average manufacturer prices for its drugs covered by the Medicare and other federal healthcare programs.

This case is a sad reminder that Big Pharma will use a variety of marketing schemes and other illegal tactics to maximize its profits at the expense of taxpayers. We applaud those who were involved in these whistleblower cases. While the government may not have uncovered the full extent and breadth of the fraud without the assistance from whistleblowers, the fact remains that such fraud seems prevalent in the pharmaceutical industry which is why it is that we continue to hope that other whistleblowers will come forward so that similar wrongdoers can be held responsible, at least financially, for their wrongdoing. Whether a criminal prosecution should also be pursued is, of course, a matter subject to debate but if these same companies continue to engage in illegal marketing, we believe that they should also be criminally prosecuted as well and would expect the Department of Justice to enforce the laws against them regardless of their “special interest” status.

Some of the country's leading attorneys in qui tam whistleblower cases and IRS Whistleblower cases will gather for the "First Annual Whistleblower Law Symposium," which will take place at the Georgia State Bar Headquarters on Thursday, September 20, beginning at 9:00 a.m. (See Agenda below). This Whistleblower Law Symposium is organized and co-chaired by the authors of this whistleblower lawyer blog, Michael A. Sullivan and Richard W. Hendrix.

The presenters will include the very successful Pat O’Connell of the Texas Attorney General’s Office, whose group has recovered more than $216 million in health care fraud cases since 1999; and Jim Breen, who has represented relator Ven-A-Care of the Florida Keys Inc. in many very substantial qui tam cases, including the action that led to last week’s announcement by DOJ of a settlement with Aventis Pharmaceuticals Inc.

In addition, Steve Cowen of King & Spalding, LLP will chair a discussion of issues in defending False Claims Act cases; Marlan Wilbanks and other relators’ counsel will speak as well; and Charlie Richards of the Georgia Attorney General's Office and Georgia’s Inspector General Doug Colburn will discuss the new Georgia State False Medicaid Claims Act.

We will also discuss the bill introduced last week by Senators Grassley, Durbin, Specter, and Leahy to make substantial modifications to the federal False Claims Act, the “False Claims Act Correction Act of 2007.” (See http://grassley.senate.gov/public/index.cfm?FuseAction=PressReleases.Detail&PressRelease_id=fac0a482-1321-0e36-ba6f-0150b8a2b182&Month=9&Year=2007).

Further, my partner Richard Hendrix and I will explain and discuss the new IRS Whistleblower Program created by Congress in December 2006. I spent several hours this past week in Washington with the Director of the new IRS Whistleblower Office, Stephen Whitlock, to prepare for and appear in a panel discussion to explain the new IRS Whistleblower Program. I also enjoyed lunch with the lead IRS official responsible for IRS Whistleblower claims in the financial services industry, Stuart Mann, and with Nicole Cammarota, an IRS official who is working on the new regulations. There is a great deal of excitement about this new IRS Whistleblower program, which rewards citizens who report large tax fraud, tax evasion, and other tax law violations to the IRS. (Our firm is pursuing a variety of IRS Whistleblower cases across the country.)

For anyone who believes that taxpayers pay too much to allow fraud against the federal and state governments, these exciting new developments in the law are important.

We are excited to be hosting this Whistleblower Law Symposium, and to discuss recent developments in the False Claims Act, the new state False Claims Acts, and the new IRS Whistleblower Program. The Agenda for the Symposium is below.

Continue reading "Whistleblower Law Attorneys to Gather for Symposium on False Claims Act, State False Medicaid Claims Act, and New IRS Whistleblower Rewards Program" »

Senators Specter and Leahy to Co-Sponsor Pro-Taxpayer Law to "Correct" Recent Court Decisions That Limited Effectiveness to Government of Qui Tam Whistleblower Law, the False Claims Act

In one of the most potentially significant developments ever discussed on this whistleblower lawyer blog, Senator Charles Grassley (R-Iowa) announced today that he and Senator Dick Durbin (D-Illinois) are co-sponsoring a bipartisan bill designed to restore the government's primary tool for fighting fraud against taxpayers, the False Claims Act, to its intended effectiveness. Court decisions in recent years had weakened the False Claims Act and impaired its usefulness in fighting fraud.

The new bill, the "False Claims Act Correction Act," will also be co-sponored by Republican Senator Arlen Specter of Pennsylvania, and Democratic Senator Pat Leahy of Vermont. Representative Howard Berman (D-California) is expected to introduce similar legislation in the House to strengthen the qui tam whistleblower law, which allows private citizens to report fraud against the government and be rewarded.

Senator Grassley and Rep. Berman are largely credited with creating the modern False Claims Act through sponsoring Amendments in 1986 to the whistleblower law.

We applaud this bipartisan effort by these lawmakers to ensure that taxpayers' funds are protected from fraud through the most effective means ever devised--encouraging private citizens to report fraud by allowing them to receive rewards as qui tam whistleblowers. The False Claims Act is as important now as it was when enacted in President Lincoln's time.

Yesterday I enjoyed leading a panel discussion of the new State False Claims Acts, at the Southeastern Health Care Fraud Conference in Atlanta. Of particular interest to this audience was the new Georgia State False Medicaid Claims Act that became law in May 2007, which has qui tam whistleblower provisions similar to the federal False Claims Act.

Our audience of health care attorneys heard a detailed account of Florida's successes with its State False Claims Act by Mark S. Thomas, the Chief of Staff and Special Counsel of the Florida Agency for Health Care Administration. We also learned how the Georgia Attorney General's Office plans to implement the new State False Medicaid Claims Act in remarks by Charles M. Richards, Senior Assistant Attorney General of the Georgia State Health Care Fraud Control Unit.

Other excellent presentations were made in this seminar organized by my friends Steve Cowen of King & Spalding, LLP, and Joe Whitley of Alston & Bird, LLP. I am grateful to Joe and Steve for the opportunity to participate and explain the False Claims Act, the new Georgia State False Medicaid Claims Act and other state False Claims Acts, some of which have added interesting new wrinkles to health care compliance, by creating new theories of liability not found in the federal Act. (An article explaining some of the new thoeries of liability that these new State False Claims Acts introduce will appear in the October Georgia Bar Journal.)

To explain in depth this new whistleblower law to attorneys, as well as the federal False Claims Act and the new IRS Whistleblower Rewards Program, our firm has already scheduled the "First Annual Whistleblower Law Symposium" in Georgia at the State Bar of Georgia Headquarters in Atlanta on September 20, 2007. We are excited that joining us is the leader of Texas' already hugely successful effort to recover damages for Medicaid fraud, Pat O'Connell, the Chief of the Civil Medicaid Fraud Section of the Texas Office of Attorney General. Other nationally-known speakers will join us as well on September 20.

One of the many types of fraud and false claims that whistleblowers can report to whistleblower attorneys is unlawful "kickbacks" paid by companies that do business with the federal government.

The Justice Department has announced a settlement with IBM and PriceWaterhouseCoopers for more than $5.2 million, to resolve allegations that these firms violated the False Claims Act through business arrangements that allegedly constituted unlawful kickbacks. The announcement followed a whistleblower suit under the qui tam provisions of the False Claims Act, which we have explained on this whistleblower lawyer blog previously.

According to the government, it investigated IBM and PWC as part of an ongoing investigation of government technology vendors and consultants. Other complaints have been filed in April 2007 in Arkansas against Accenture, Hewlett-Packard, and Sun Microsystems, according to the Justice Department.

We congratulate the agencies involved in securing this victory for taxpayers: the Justice Department’s Civil Division; the U.S. Attorney’s Office of Little Rock, Ark.; the Department of Energy’s Office of Inspector General (OIG); ; the Defense Criminal Investigative Service; the General Services Administration Office of the Inspector GeneralNASA Office of the Inspector General; the Army Criminal Investigation Command; the Defense Contract Audit Agency; the Environmental Protection Agency (EPA) Office of the Inspector General; the Postal Service Office of the Inspector General; the Navy Criminal Investigative Service; and the Air Force Office of Special Investigations.

The Minerals Management Service of the U. S. Department of Interior is responsible for the collection of royalties on federal and Indian leases. Companies who have such leases are required to report to the Department of Interior the value of natural gas produced (or minerals mined) from federal and Indian leases and to pay a percentage to the government as royalties. When the entity that has the duty to pay the royalties files a false report and misstates what the collected revenues were, this is a “reverse” false claim. It is “reversed” because the entity is not making a claim for payment but is instead paying less money than is owed to the government under false pretenses. This case, like any scheme to defraud the federal government, is actionable under the False Claims Act and fortunately, the Department of Justice is vigorously prosecuting cases where those who owe money to the government are willfully failing to pay it.

Yesterday, on August 15, the Department of Justice announced that Burlington Resources, Inc., a subsidiary of Conoco Phillips, had agreed to settle a False Claims Act case with the United States for $97.5 million. A whistleblower had filed a Complaint against Burlington alleging that it was systematically underpaying royalties due on their federal and Indian gas production. The Department of Justice intervened in the Qui Tam lawsuit, determined that the whistleblower’s allegations were true and correct and forced a settlement with Burlington Resources, Inc.

What this case shows is that the Federal False Claims Act continues to be the government’s best tool for obtaining restitution and penalties in cases where companies are failing to discharge their duties to the federal government. While schemes to defraud take a variety of forms, obviously, a company with a lease agreement with the United States has a fiduciary duty to properly account for royalties. By submitting false reports understating the amount of gas production, Burlington Resources, Inc. exposed itself to the whistleblower suit and presumably paid 2 to 3 times the amount of actual damages in penalties as provided for by the Federal False Claims Act.

As whistleblower attorneys, we are pleased that the Department of Justice secured this settlement on behalf of all taxpayers. Any company that underreports the payment of revenue owed to the government should be sanctioned as was Burlington Resources, Inc. The best way to sanction other companies who would defraud the federal government is for whistleblowers with inside information to come forward and to make sure that these dishonest companies are forced to do the right thing. It is regrettable that such whistleblower suits are necessary to force companies to do what is right but time and again we see evidence that informants with insider information are vital in insuring that federal contractors deal honestly with their government.

This past week produced examples of why whistleblowers and their attorneys must continue to insist that false claims and health care fraud not be tolerated. The indictments of Texas medical equipment suppliers--who are alleged to have overbilled Medicare and Medicaid for expensive scooters and chairs while providing cheaper ones --show how prevalent false claims are.

The indictment of a physician in West Virginia for allegedly falsifying the time spent in patient visits shows another common type of health care fraud and false claims.

A Virginia home health care provider's indictment for allegedly using unqualified nurses and nurses aides is yet another example of health care fraud that whistleblowers can help stop.

You can read the new articles at the links above--we attorneys who write this whistleblowerlawyerlog want to keep public awareness of health care fraud and other fraud against taxpayers front and center.

Fraud and False Claims by Government Contractor in Dallas Leads to $2.6 Million Settlement with Justice Department

The statute most used by whistleblowers and whistleblower attorneys has resulted in yet another recovery of money for false claims. The Justice Department has announced that Affiliated Computer Services, Inc. (ACS) has agreed to pay more than $2.6 million to settle a False Claims Act case.

The government alleged that ACS, from 2002-2005, inflated its claims for payment of government funds for recruiting and enrolling individuals in various government programs funded by the U.S. Department of Agriculture (USDA), the U.S. Department of Labor (DOL), and the Administration for Children and Families of the U.S. Department of Health and Human Services (ACF).

According to the government, ACS "self-reported" its violations of the False Claims Act to the government. Based on our experience as federal prosecutors before we began representing whistleblowers, this type of perceived "cooperation" by a defendant sometimes can reduce what it ultimately pays.

A company that discloses its wrongdoing and offers to pay back funds that it wrongfully obtained is to be commended. Of course, most wrongdoers do not--and this is why whistleblowers perform such a valuable service in bringing corruption to light.

AARP Applauds State Law to Combat Medicaid Fraud with Qui Tam Whistleblower Approach

We were pleased to see that Florida has joined New York, Georgia, Oklahoma and more than a dozen other states in creating a State False Claims Act with qui tam whistleblower provisions similar to the federal False Claims Act. As we have discussed at length on this whistleblower lawyer blog, Congress has created financial incentives for states to pass whistleblower laws with qui tam provisions to protect Medicaid funds.

Florida's Governor signed the Florida False Claims Act into law on June 28, 2007.

AARP supported the legislation to "preserve scarce resources for Florida's most vulnerable citizens."

The wave of new False Claims Acts is a responsible and cost-effective approach to protecting taxpayer dollars. We congratulate Florida on its new law.

Durable Medical Equipment Company Received Kickbacks from Pharmacy Owners in Health Care Fraud Case

In a Medicare fraud case of interest to whistleblowers and whistleblower attorneys, a Miami a federal jury convicted a home health care operator of conspiracy to defraud and submit false claims and receive kickbacks, conspiracy to commit health care fraud, and three counts of receiving kickbacks. Gisela Valladares, owner of PRN Home Health Care, Inc., faces up to 30 years in prison.

According to the Justice Department, two pharmacy owners billed Medicare for more than $20 million in connection with the referral of false prescriptions for “compounded” aerosol medications furnished by Valladares and other co-conspirator owners of durable medical equipment (DME) companies. The pharmacy owners paid kickbacks of approximately half of the money paid by Medicare.

The pharmacy owners testified that Valladares played a key role--acquiring the patients’ information. The medication charged to Medicare was unlawfully manufactured in shell pharmacies that contained almost no actual pharmaceutical products. One pharmacy owner testified that his business had no foot traffic, no patients, no sundries and no real medicine, but was simply a "mill" used to defraud Medicare.

Sham billing by health care providers bleeds essential dollars from our Medicare system. Whistleblowers who bring qui tam cases under the False Claims Act can help fight this fraud against all of us.

Whistleblower Reveals Alleged Drug Price Schemes to Defraud Medicaid

When drug companies hide the true prices charged for prescription drugs, the pharma companies can violate laws protecting state Medicaid programs from being defrauded by "overpaying" for drugs. The experienced Medicaid fraud prosecutors of the Texas Attorney General's Office have announced such allegations against three pharmaceutical manufacturers for tens of millions of dollars in Medicaid fraud in Texas.

For pharmaceutical products to be eligible for Medicaid reimbursement, the law generally requires that manufacturers accurately report "generally and currently available market prices" to the Medicaid program, according to the Attorney General's release.

The Attorney General alleges that these drug companies sold hundreds of Medicaid-covered drugs at large discounts to companies such as Wal-Mart, CVS Pharmacy and Walgreens, but failed to disclose the accurate pricing information to the Medicaid program. Consequently, the state was deceived about current market prices for the drugs.

When Wal-Mart, CVS, and Walgreens sought Medicaid reimbursement for these prescription drugs, the false pricing reports caused Medicaid to overpay by millions of dollars for these drugs. Ven-a-Care, an industry whistleblower, disclosed the scheme.

The pharma companies named by the Attorney General are:
• Mylan Laboratories Inc. of Pennsylvania (with national subsidiaries Mylan Pharmaceuticals Inc. and UDL Laboratories Inc.)
• Sandoz Inc. of New Jersey (with subsidiaries Geneva Pharmaceuticals Inc., Novartis Pharmaceuticals Inc., Eon Labs and Apothecon Inc.)
• Teva Pharmaceuticals Inc. of Pennsylvania (with subsidiaries Lemmon Pharmaceuticals Inc., Copley Pharmaceuticals Inc. Ivax Pharmaceuticals Inc., Sicor Pharmaceuticals Inc., Teva Novopharm Inc. and Teva Pharmaceutical Industries, Ltd.).

We applaud the Texas Attorney General's Office once again for leading the fight against health care fraud.

False Claims Act Case Continues Over Health Care Fraud Allegations

As other whistleblower attorneys who were former federal prosecutors know, Medicare fraud may sometimes lead not only to a qui tam whistleblower lawsuit, but also to prison time for the guilty party. A former home health care company owner now faces almost three years in prison after being convicted of defrauding Medicare of more than $1 million.

U. S. District Judge Nancy Edmunds in Detroit sentenced Amjad Khan, a certified public accountant and the former CEO of American Home Health Care Inc., to 33 months in prison. A False Claims Act case remains pending against the defendant.

The health care fraud case concerned fraudulent claims for nonreimbursable expenses between 1995 and 1999.

We agree with U.S. Attorney Stephen Murphy's comment about the case: “Health care fraud is a silent tax forcing honest citizens and corporations to pay more for health insurance premiums and medical services than they should."

Medicare Fraud and Medicaid Fraud Alleged by Nurses at Nursing Homes

Two nurses disturbed by nursing home abuse and neglect of nursing home residents--who apparently were subjected to gross nursing home malpractice--are the "whistleblowers" in a nursing home False Claims Act qui tam lawsuit in Missouri, which the U.S. Attorney's Office in St. Louis has recently announced it has joined. The whistleblower suit alleges that the nursing home operator defrauded Medicare and Medicaid by providing care that was essentially "worthless" to the nursing home patients, according to news reports.

In this "quality of care" whistleblower case, the nurses alleged that many nursing home residents suffered from dehydration, weight loss, and preventable bed sores that eventually led to amputations; that nursing home staffing was cut to unacceptable levels to save money; and that other nurses misused patients' medicines, which were not locked securely, according to reports.

The U.S. Attorney's Office in St. Louis saw enough merit in the allegations after investigating that it is pursuing its own case.

The case reportedly has been filed against Cathedral Rock Corp., an operator of nursing homes; Kent Harrington, president and CEO; and five nursing home facilities: Spring Place Care Center and McLaran Care Center in St. Louis, Oak Forest Skilled Care in Ballwin, Cathedral Gardens Care Center in north St. Louis County and Blanchette Place Care Center in St. Charles.

Nursing home abuse and neglect presents one of the most appalling types of cases imaginable. Our firm has seen similar abuses in bringing cases in which we have represented distraught family members of an elderly relative who, for example, has been allowed to develop bedsores so badly that amputations of limbs have been necessary.

We applaud nurses and other health care professionals for their courage and decency in speaking out to stop such abuses, and we hope that these Missouri nurses receive a substantial share of the money recovered by the government in this whistleblower case--they deserve it. We also commend the members of the Office of U.S. Attorney Catherine Hanaway in St. Louis for pursuing this case.

I was excited to be invited to participate in today's signing of the new Georgia "State False Medicaid Claims Act," the newest state qui tam whistleblower law. The bill's sponsor, Rep. Edward Lindsey, asked this whistleblower lawyer blog author to join him and representatives of the Georgia Department of Community Health in the Governor's Office for the signing ceremony.

Having worked with legislators on this bill, I was very happy to celebrate the law's passage today:

Participating in the signing ceremony with Governor Sonny Perdue were (shown above from left to right) Carrie Downing, Director of Legislative and External Affairs of the Georgia Department of Community Health; Dr. Rhonda Medows, Commissioner of the Georgia Department of Community Health; Inspector General Doug Colburn; Governor Perdue; Rep. Edward Lindsey, sponsor of the State False Medicaid Claims Act; whistleblower lawyer blog author Michael A. Sullivan of Finch McCranie, LLP; and Philip Consuegra, Legislative Assistant to Rep. Lindsey.

With an excellent draft bill already prepared by the State Law Department headed by Attorney General Thurbert Baker and his Senior Assistant AGs Mary Beth Westmoreland and Charlie Richards, I had provided input to Rep. Lindsey on clarifying and improving the bill, before the Legislature considered it. Inspector General Doug Colburn and I then made the rounds through the three legislative committee hearings to explain how the False Claims Act works, and how the new State False Medicaid Claims Act would operate in Georgia.

The new whistleblower law protects the State's Medicaid funds by creating liability for "treble damages" (actual losses multiplied by three), and penalties of $5,500 to $11,000 for each false claim submitted to obtain payment by the State Medicaid Program. It also encourages private citizens who know of fraud in health care to file qui tam whistleblower cases, by permitting the whistleblower to share in up to 30% of the State's recovery of money.

Georgia has joined more than 15 other states that have enacted laws to protect tax dollars used in state programs. New York and Oklahoma likewise enacted their own False Claims Act this year. Congress has encouraged states to pass similar whistleblower laws with provisions that are at least as effective as the federal False Claims Act--the states that do so will receive an extra 10% of Medicaid fraud recoveries (which works out to more than 10% when you do the math, which I will not fo here, but can explain if you email me).

To explain the new law to Georgia attorneys, our firm has already scheduled what will be a great seminar at the State Bar of Georgia Headquarters in Atlanta on September 20, 2007. We are excited that joining us is the leader of Texas' already hugely successful effort to recover damages for Medicaid fraud, Pat O'Connell, the Chief of the Civil Medicaid Fraud Section of the Texas Office of Attorney General. We also have some other excellent speakers.

After today's signing of the new Georgia False Medicaid Claims Act, Rep. Lindsey convinced the Governor to join us for another photo. Left to right are yours truly, Governor Perdue, Rep. Lindsey's Assistant Philip Consuegra, and Rep. Edward Lindsey:

Georgia taxpayers will benefit by this smart new tool that the Legislature has created. It should help deter those who would consider cheating the State Medicaid system by classic fraudulent methods such as over-billing, upcoding, and billing for services not rendered.

There is no reason why Georgia cannot replicate Texas' successes in recovering large damages when, for example, drug companies overcharge or otherwise defraud the State. Many states have taken action against pharmaceutical companies over "off-label" marketing of drugs such as Zyprexa, to recover damages for their Medicaid programs.

A qui tam whistleblower and his lawyer are very happy as a result of a $102 million jury verdict--to be shared by the whistleblower--in a False Claims Act trial that ended on May 14.

The defendants in this whistleblower case included Bill Harbert International Construction Inc.; Harbert Construction Services; Bilhar International Establishment; Harbert Corp.; and Harbert International. The case alleged bid-rigging on three U.S. government-funded construction contracts in Egypt in the 1980s and 1990s.

The jury found that defendants violated the False Claims Act and awarded $34 million in damages, which are "trebled" under the False Claims Act.

The Department of Justice lawyer, Carolyn Mark, is a veteran prosecutor. She handled one of my first cases under the False Claims Act in the late 1980s--another bid-rigging case against electrical contractors, one of whom I was defending (in my former life, before I represented whistleblowers). I sent Carolyn a note of congratulations today.

AUSA Keith Morgan also deserves kudos, as does Robert Bell, who represented whistleblower Richard Miller.

Two of my favorite D.C. federal judges presided over the case. Initially, the late Judge William Bryant had it, and it was later transferred to Judge Royce Lamberth.

Continue reading "Whistleblower Case Victory in D.C. Bid-Rigging Trial" »

In a whistleblower lawsuit settlement, the Loma Linda Behavioral Science Center agreed to pay more than $2 million to resolve allegations of overbilling.

This False Claims Act whistleblower case was filed by a former employee of Healthcare Financial Advisors (HFA), a consulting firm that advises hospitals in preparing cost reports. The lawsuit alleges that HFA assisted its clients in seeking reimbursement for unallowable costs from Medicare and Medi-Cal.

Health care cases remain busy this week. The Justice Department on April 26 announced that it is joining whistleblowers in pursuing three qui tam lawsuits against HealthEssentials Solutions Inc. (HES) that allege false claims were submitted to Medicare.

The cases involve allegations of upcoding -- improperly using a diagnosis code that is not supported by the medical record, for the purpose of obtaining greater reimbursement--and billing for medically unnecessary services.

The three cases were filed separately in the U.S. District Court in Louisville, Ky., by former employees of HES.

A subsidiary of the drug manufacturer Pfizer has agreed to plead guilty in a kickback scheme and to pay a criminal fine of $19.68 million, according to the U.S. Attorney for the District of Massachusetts, Michael J. Sullivan (not to be confused with Michael A. Sullivan, one of the authors of this whistleblower lawyer blog).

The government's announcement was that Pharmacia & Upjohn Company, Inc., a subsidiary of Pfizer, Inc., was charged with offering a kickback in connection with the administration and distribution of its human growth hormone, Genotropin. Another Pfizer subsidiary, Pharmacia & Upjohn Company LLC entered into a Deferred Prosecution Agreement with the Government for what the government described as illegally promoting Genotropin for “off-label” uses as anti-aging, cosmetic use and athletic performance enhancement. The result is that the companies will pay a total amount of $34.7 million.

Whistleblowers and whistleblower attorneys may consider Senator Charles Grassley of Iowa as the "patron saint" of protecting taxpayer money from fraud against the government. Sen. Grassley continues his great work as he testifies today before the Senate Judiciary Committee about Iraq contractor profiteering and fraud.

The Senator already claimed another recent victory by spearheading passage of the new IRS Whistleblower Rewards Program. Sen. Grassley saw how cost-effective the False Claims Act has been in recovering more than $20 billion for the government--largely because of the improved qui tam whistleblower enhancements enacted in 1986. (Sen. Grassley and Rep. Howard Berman were sponsors of the landmark 1986 amendments to the False Claims Act.)

Sen. Grassley was to testify that the False Claims Act whistleblower statute should be strengthened to deal with contractors such as Halliburton. He mentioned trying to recover $60 billion for meals not provided to the military by the defense contractor.

We find it refreshing to see someone like Sen. Grassley who is a true public servant--again and again. Congress and the American people should follow his lead in recognizing the value of effective whistleblower programs that encourage whistleblowers to report fraud, waste, and abuse of taxpayer dollars.

Otherwise, crime does pay for those who cheat the government--and thus other taxpayers.

We found a very interesting article from last week's Legal Times, with an excerpt of interest to whistleblower lawyers as follows:

"Last fall, the Justice Department launched a National Procurement Fraud Task Force to focus "resources at all levels of government to increase criminal enforcement" in areas of procurement fraud. The stepped-up attention to this area throughout the government may signal that the $3.1 billion record in federal fraud recoveries in 2006 could soon be broken. More than 50 inspectors general from across all government departments and agencies also are actively pursuing thousands of investigations."

"In addition, powerful newly installed Democratic committee and subcommittee chairs in Congress are launching dozens of oversight investigations of alleged government and contractor abuses, focusing on the reconstruction effort in Iraq and in the U.S. Gulf Coast following Hurricane Katrina, numerous areas of military and homeland-security procurement, the pricing of pharmaceuticals and other significant areas of federal contracting. For instance, House Oversight and Government Reform Committee Chairman Henry Waxman, D-Calif., in the first week of February began one set of hearings on alleged waste, fraud and abuse by government contractors in Iraq and another set of hearings on alleged overcharging by drug companies in federal health programs."

Since we began the Whistleblower Lawyer Blog to discuss topics of interest to attorneys, potential whistleblowers and others about developments in the new IRS Whistleblower Rewards Program, in qui tam litigation under the False Claims Act, and other whistleblower developments that might be of interest to other lawyers or whistleblowers, we have received some very positive feedback.

We have discussed not only how the IRS Whistleblower Program and the False Claims Act work, but we have also tried to highlight specific areas we have been working in, such as Hurricane Katrina fraud, Iraq fraud, Medicare and Medicaid fraud, and the new IRS Whistleblower Rewards Program, to name a few. We are always looking to improve the Whistleblower Lawyer Blog and solicit your input on any other issues who would like to see addressed.

Please reply directly to me with comments at msullivan@finchmccranie.com. Thanks for your input!

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" »

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 " »

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" »

I wrote this article for a seminar to explain the False Claims Act to those who may not know about it. I hope it may be useful to those who are interested in the Act. I have divided it into several sections--this is the first section, summarizing how the False Claims Act came to be in the time of Abraham Lincoln, and how it has evolved since then:

I. Introduction

Fraud is perhaps so pervasive and, therefore, costly to the Government due to a lack of deterrence. GAO concluded in its 1981 study that most fraud goes undetected due to the failure of Governmental agencies to effectively ensure accountability on the part of program recipients and Government contractors. The study states:

For those who are caught committing fraud, the chances of being prosecuted and eventually going to jail are slim . . . The sad truth is that crime against the Government often does pay.1

Fraud–and allegations of fraud–plague government spending at every level. Today, as the federal and state governments struggle to fund the billions of dollars spent annually on health care through Medicare and Medicaid; the Iraq war and reconstruction effort; other Department of Defense procurement; Hurricane Katrina and other disaster relief; and government grants and programs of every description, there is no shortage of opportunities for fraud against the public fisc.

The federal False Claims Act, 31 U.S.C. §§ 3729 - 3733, has been the federal government’s “primary” weapon to recover losses from those who defraud it.2 The Act not only authorizes the government to pursue actions for treble damages and penalties, but also empowers and provides incentives to private citizens to file suit on the government’s behalf as “qui tam relators.”3 Over the past 20 years, recoveries for the federal government have grown dramatically since Congress amended the Act in 1986 to encourage greater use of the qui tam provisions, as part of a “coordinated effort of both the [g]overnment and the citizenry [to] decrease this wave of defrauding public funds.”4

The False Claims Act has unique procedural requirements that create many pitfalls for a lawyer prosecuting or defending cases under the Act. In addition, the law varies among the different federal circuits in ways that can determine the outcome of a False Claims Act case, depending on where it is filed.

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1 Legislative History to P.L. 99-562, False Claims Amendments Act of 1986, Senate Report No. 99-345 S. Rep. 99-345, 3, 1986 U.S.C.C.A.N. 5266, 5268 (hereinafter “Legislative History”) (quoting 1981 GAO Report to Congress, “Fraud in Government Programs: How Extensive is it? How Can it be Controlled?”).

2 Legislative History, at 2, 1986 U.S.C.C.A.N. at 5266.

3 The term “qui tam” is derived from the Latin phrase, “qui tam pro domino rege quam pro se ipso in hac parte sequitur,” which means “who pursues this action on our Lord the King's behalf as well as his own.” Vermont Agency of Natural Resources v. United States ex rel. Stevens, 529 U.S. 765, 769 N.1 (2000).

4 Senate Report No. 99-345 S. Rep. 99-345, *2, 1986 U.S.C.C.A.N. 5266, **5267. Appendix 2 shows the growth in revenues, which is discussed in section IV infra.

Continue reading "Introduction to the False Claims Act and Qui Tam Whistleblower Cases" »