Government Statistics Show Upward Trend in False Claims Act Settlements
Posted by Robert J. Fluskey, Jr. - 01/31/12 at 03:01:43 pmData released by the U.S. Department of Justice reveal a substantial increase in False Claims Act recoveries over the past two years. These statistics, along with comments from Department of Justice officials, indicate that the False Claims Act whistleblower provisions have become the government’s tool of choice in attacking fraud, particularly in the health care and pharmaceutical industries.
During fiscal year ending September 30, 2011, the Department of Justice secured more than $3 billion through settlements and judgments in civil cases involving fraud against the government. This marked the second year in a row where the Department of Justice reached or exceeded $3 billion. Since January 2009, the Department of Justice has recovered approximately $8.7 billion. This is the largest three-year total in the Justice Department’s history.
Of the $3 billion total recovery for fiscal year 2011, $2.8 billion was secured under the whistleblower provisions of the False Claims Act. And $2.4 billion of the total annual recovery was attributable to fraud committed against federal health care programs, such as Medicare and Medicaid. Since January 2009, the Department of Justice has used the False Claims Act to recover more than $6.6 billion in federal health care dollars.
At the end of last year, Assistant Attorney General Tony West thanked the “courageous citizens” who reported fraud under the whistleblower provisions of the False Claims Act: “We are tremendously grateful to whistleblowers who have brought fraud allegations to the government’s attention and assisted us in the public-private partnership to fight fraud.”
Many of the 2011 False Claims Act cases based on health care fraud were accompanied by criminal investigations. The Department of Justice obtained 21 criminal convictions and approximately $1.3 billion in criminal fines, forfeitures, restitution, and disgorgement under the Food, Drug and Cosmetic Act during 2011.
Fiscal year 2010 saw similarly impressive recoveries. The government secured approximately $2.5 billion in health care fraud settlements/judgments. According to the Department of Justice, “most of the cases resulting in recoveries were brought to the government by whistleblowers under the False Claims Act, the federal government’s primary weapon in the battle against fraud.”
The Department of Justice believes that the 2010 spike in recoveries for health care fraud was fueled, at least in part, by the creation of a new inter-agency task force, the Healthcare Fraud Prevention and Enforcement Action Team, which was designed to increase coordination and optimize criminal and civil enforcement among the Department of Health and Human Services and the Department of Justice.
If the trend continues, 2012 could be a year of unprecedented False Claims Act recoveries.
False Claims Act Violations: When Is a Claim “False”
Posted by The Whistleblower Attorney - 01/25/12 at 09:01:33 amParties frequently battle over whether the conduct at issue was “false” such that False Claims Act liability is appropriate.[1] Courts have recognized two types of false claims: factually false claims and legally false claims.[2] A factually false claim is false as to a matter of fact (for example, a claim to have provided goods that were never provided).[3] A legally false claim involves false certifications of compliance with laws or regulations that are prerequisites to payment.[4] Courts have further divided the “legally false claims” into express certification and implied certification claims.[5]
The current debate surrounds how far the “implied certification” theory can be taken. In other words, when does a lack of compliance with a program requirement make a claim seeking payment for goods or services (which were actually provided) a false claim under the False Claims Act?
The First Circuit has taken the most extreme position in Hutcheson v. Blackstone Medical, Inc.[6] In that case, the relator claimed that Blackstone engaged in a nationwide kickback scheme to get physicians to use its medical devices, and that Blackstone knew that the scheme would cause physicians to submit claims for payment that contained material misrepresentations.[7] She argued that a claim is false if it does not meet a material precondition of payment, that compliance with the Anti-Kickback Act was such a precondition, and that Blackstone, in providing the kickbacks, caused hospitals and physicians to submit false claims to Medicare.[8]
The relator relied on two documents to show that Medicare reimbursement was conditioned on compliance with the Anti-Kickback Act: (1) a provider agreement that hospitals and physicians had to sign to receive Medicare reimbursement that included a certification that the signatory understands that payment of a claim is conditioned on complying with applicable laws, including the Anti-Kickback Act, and (2) a hospital cost report, submitted by hospitals, that also included a certification that the services identified in the report were provided in compliance with all applicable laws and regulations.[9]
Blackstone moved to dismiss, and the district court granted the motion. It held that the provider agreement was specific to the party seeking reimbursement (the physicians and hospitals) and that the cost report wasn’t specific enough to condition compliance with the Anti-Kickback Act on payment.[10] It then held that, because the relevant statues and regulations did not expressly condition Medicare payment on compliance with the Anti-Kickback Act, the relator’s theory failed.[11]
The First Circuit rejected the district court’s argument that a precondition of payment must be explicitly stated in a statute or regulation to give rise to a false claim.[12] Additionally, it held that a non-submitting entity could violate the False Claims Act through the legal certification of a submitting entity that was true; in other words, it does not matter whether the submitting entity knew or should have known about a non-submitting entity’s unlawful conduct.[13] In the context of the case, the court found that the provider agreement and hospital cost report were sufficient to show that compliance with the Anti-Kickback Act was a condition of payment.[14]
This decision expands the universe of potential claims for whistleblowers by allowing liability to be placed on wrongdoers removed from the submitting entity and engaging in conduct that may not have been clearly demarcated as materially improper. But, in its petition for certiorari to the Supreme Court, Blackstone noted the possible consequences of this decision:
After the First Circuit’s decision, a relator’s allegations that claims are ‘legally false’ state a cause of action under the FCA anytime a relator alleges that wrongful conduct occurred somewhere in a chain of transactions among various entities, one of which ultimately submitted a claim—even if the claim itself contains no false statement about the allegedly wrongful conduct and even if no statute or regulation conditions payment of a claim on such compliance.[15]
| 000164/00000 Administrative 8193983v1 |
The Supreme Court, however, denied certiorari to Blackstone, so the issue will continue to be debated within the appellate courts.
[1] Falsity and the FCA: The First Circuit’s Blackstone and Amgen Decisions (Part I), FCA Alert (July 31, 2011), http://www.fcaalert.com/2011/07/articles/decisions-interpreting-fca-ele/falsity-and-the-fca-the-first-circuits-blackstone-and-amgen-decisions-part-i/.
[2] Id.
[3] Id.
[4] Id.
[5] Id.
[6] 647 F.3d 377 (1st Cir. 2011).
[7] Id. at 378.
[8] Id. at 379.
[9] Id. at 381-82.
[10] Id. at 383.
[11] Id.
[12] Id. at 387.
[13] Id. at 390.
[14] Id. at 393.
[15] Petition of Blackstone Med., Inc. for Writ of Certiorari at *3, Blackstone Med., Inc. v. United States, 2011 WL 3860767 (Aug. 30, 2011) (No. 11-269).
Inflated Charges to Medicare for Radiopharmaceutical Lead to $30 Million False Claims Act Settlement
Posted by John Sinatra - 01/25/12 at 09:01:01 amLate last week, the Justice Department announced that a large for-profit health care concern has joined the growing list of health care companies settling False Claims Act cases. In this case, the business will pay the government $30 million plus interest to settle allegations that one of its recently acquired (2004) affiliates violated the FCA by causing Medicare to overpay for a radiopharmaceutical used in certain cardiac diagnostic imaging procedures. According to the Justice Department press release, the pharmaceutical is “distributed in multi-dose vials of powder. In a process known as reconstitution, nuclear pharmacies mix the powder with a radioactive agent to prepare individual doses that are injected into patients as part of the cardiac imaging procedures.” Medicare payment was based, in part, on the number of doses available from vials of the drug. The government alleged that the affiliate provided false or misleading information regarding the number of doses available from vials, causing Medicare to pay artificially inflated rates.
This case originated as a qui tam, or whistleblower, case under provisions of the False Claims Act that permit private citizens with knowledge of fraud against the government to bring an action on behalf of the United States and to share in the recovery. In this qui tam matter, the relator who brought the case will receive over $5 million.
Government lawyers reiterated that pharmaceutical companies should be aware that the government is scrutinizing records “to detect all forms of health care fraud.” In its release, the government stated its hope that “vigorous civil and criminal enforcement will deter companies from defrauding taxpayers in the future.”
Shareholder Derivative Suits Premised on False Claims Act Violations
Posted by Michelle Merola - 12/19/11 at 01:12:45 pmThe government and the whistleblowers who assist the government are not the only parties taking aim at corporate America. Private plaintiffs are finding ways to bring civil actions based in part on alleged False Claims Act violations. Recently there have been a rash of shareholder derivative suits that allege breaches of fiduciary duties and reckless mismanagement by officers and directors. Although shareholder derivative suits are not new, the charge alleged in these suits is—namely, the failure to manage risk appropriately led to violations of the False Claims Act or other fraud statutes.
One prominent example is the case of Galaviz v. Berg, CV-10-3392 (N.D. Cal., filed Aug. 2, 2010). In that case, the plaintiff, on behalf of Oracle (one of the largest software corporations in the world), filed suit against certain senior officers and members of the board of directors for breach of fiduciary duty and abuse of control. Specifically, the plaintiff alleged that defendants abused their controlling positions at Oracle by their reckless mismanagement of the company, authorizing the company to defraud the United States by failing to disclose deep discounts Oracle offered to commercial customers but not made available to federal government agencies. According to the complaint, the federal government was overcharged millions of dollars as a result of the deception.
The fraud was first revealed in a whistle-blower action filed by a former senior executive, Paul Franscella. As discussed in our October 21, 2011, post, Mr. Franscella’s allegations were recently settled when Oracle agreed to pay $199.5 million—$40 million of which Mr. Franscella recovered directly. To date, the shareholder derivative action has been stalled by motions focused on esoteric legal issues. But, now that the whistle-blower suit is resolved, the shareholder derivative action may take on new life. One thing is clear, the Galaviz case will serve as a road map for other private litigants who are determined to send a message to corporate America.
Whistleblower Suit Alleges Inflated Medicare Reimbursement Charges
Posted by John Sinatra - 12/08/11 at 03:12:39 pmOn November 22, 2011, the Department of Justice announced that it filed a complaint in a False Claims Act case against BestCare Laboratories, Inc. and its founder. The whistleblower case was originally commenced by a qui tam relator. The case is pending in the U.S. District Court for the Southern District of Texas.
According to the DOJ press release, the FCA suit alleges the defendants “knowingly misrepresented the distances traveled by its lab technicians to artificially increase reimbursement from Medicare for mileage-based technician travel allowance fees.” The lawsuit alleges that BestCare “transported laboratory test specimens as air cargo from nursing home customers located in the Austin, Dallas/Ft. Worth, El Paso, San Antonio, and Waco areas to BestCare’s laboratory close to Houston, but claimed mileage for ground travel as though its technicians personally drove the specimens one way or round trip between those cities and its lab in Houston.”
According to the release, the government stated, “[t]here’s no question that health care providers are entitled to recover their reasonable costs for services they actually deliver, but we have zero patience for those who invent or inflate Medicare reimbursement claims,” said Tony West, assistant attorney general for the Civil Division. “As today demonstrates, the Justice Department will vigorously enforce the False Claims Act to protect our seniors and safeguard the Medicare trust fund.”
Kenneth Magidson, U.S. attorney for the Southern District of Texas, added that his office “is dedicated to recovering taxpayer dollars misappropriated from Medicare. . . . we are committed to aggressively litigating civil suits against dishonest providers to protect the seniors who depend on Medicare.”
Misappropriation of Confidential Information or Legitimate Whistleblowing?
Posted by Reena Dutta - 10/31/11 at 01:10:14 pmThere is an obvious tension between the desire to encourage employees to come forward with information necessary to report and expose fraud and the recognition that certain company information is truly private and confidential and should remain so. A recent decision from the U.S. Department of Labor Administrative Review Board further complicates the issue. Read the decision here.
Celanese Corporation, an international publicly traded corporation, hired Matthew Vannoy to catalog and reconcile employee expense reimbursement submissions. In 2007, Vannoy filed an internal compliant about employees misusing company credit cards; around the same time, he began talking to an attorney about Celanese’s business practices with respect to its employee credit card use program. Vannoy then filed a claim with the IRS Whistleblower Rewards Program, and he provided documents to the IRS that included Celanese proprietary and confidential information. A few months later, Vannoy’s supervisor began conducting an investigation into his email communications with employee cardholders and found that he sent a document containing 1,600 social security numbers of Celanese employees to a personal e-mail account. Vannoy was suspended without pay and ultimately terminated.
Section 806 of the Sarbanes-Oxley Act protects employees of publicly traded companies from retaliation for engaging in protected activity. Vannoy filed a complaint with OSHA, claiming that Celanese violated the Sarbanes-Oxley Act by terminating him, and he requested a hearing before an administrative law judge. The administrative law judge granted Celanese summary judgment, based in part on its finding that Vannoy did not suffer an adverse employment action as a result of his protected activity because he was terminated due to his misappropriation of employee information in violation of company policy.
The board reversed. It noted that, under the SEC whistleblower program, a whistleblower is entitled to an award if he or she provides original information to the SEC, defined as information derived from the independent knowledge and analysis of the whistleblower. Thus, the board noted that Congress had anticipated that whistleblowers would provide insider information to the SEC relating to fraud and, in fact, a newly issued SEC rule prohibited employers from enforcing confidentiality agreements to prevent whistleblower employees from cooperation with the SEC.
In closing, the board stated:
“The IRS whistleblower bounty program Vannoy used, like the SEC program recently established, reflects Congressional recognition of the notable contributions to law enforcement provided by whistleblowers with non-public, inside information. Vannoy’s allegations must be viewed in light of these significant enforcement interests. Evidence of record supports Vannoy’s allegations that he procured employee data in 2005 and in 2007 as part of his efforts to facilitate his complaint with the IRS as to Celanese’s accounting practices. In doing so he sent confidential information by e-mail and created compact discs containing confidential information concerning Celanese employees without the company’s permission. . . . Thus the crucial question for the ALJ to resolve with a hearing on remand is whether the information that Vannoy procured from the company is the kind of ‘original information’ that Congress intended be protected under either the IRS or SEC whistleblower programs, and whether the manner of the transfer of information was protected activity within the scope of SOX.”
Depending on how the administrative law judge rules, employees will be able to make use of confidential or protected company information without fear of being terminated or prosecuted to support their whistleblower claims. But where should the line be drawn? Would you be ok with your personal information (social security number, home addresses, names of children) being disclosed by a whistleblower?
Oracle Whistleblower to Receive $40 Million in False Claims Act Suit
Posted by John Sinatra - 10/21/11 at 02:10:51 pmOn October 6, 2011, the Justice Department announced a significant settlement with Oracle to resolve False Claims Act allegations. In particular, Oracle Corp. and Oracle America Inc. have agreed to pay $199.5 million plus interest for allegedly failing to meet their contractual obligations to the General Services Administration (GSA).
According to the government, this settlement relates to a 1998 contract to sell software licenses and technical support through GSA’s Multiple Award Schedule (MAS) program. The government said, “The MAS program provides the government and other GSA-authorized purchasers with a streamlined process for procurement of commonly used commercial goods and services. To be awarded a MAS contract, and thereby gain access to the broad government marketplace and the ease of administration that comes from selling to hundreds of government purchasers under one central contract, contractors must agree to disclose commercial pricing policies and practices, and to abide by the contract terms.”
The settlement resolves allegations that, in contract negotiations and over the course of the contract’s administration, Oracle “knowingly failed to meet its contractual obligations to provide GSA with current, accurate, and complete information about its commercial sales practices, including discounts offered to other customers, and that Oracle knowingly made false statements to GSA about its sales practices and discounts.”
The settlement further resolves allegations that Oracle “knowingly failed to comply with the price reduction clause of its GSA contract by not disclosing to GSA discounts Oracle gave to its commercial customers when they were higher than the discounts that Oracle had disclosed to GSA, and by failing to pass those discounts on to government customers.”
As a result, the government alleged that it accepted lower discounts and ultimately paid more than it should have for Oracle products. The suit originated as a whistleblower suit filed in federal court in Virginia. According to the Justice Department, the former Oracle employee who blew the whistle will recover $40 million as his share in the qui tam suit.
News for New York Tax Whistleblowers
Posted by Bill Comiskey - 09/08/11 at 11:09:55 amAs we move into the final stretch of 2011, interesting developments appear to be on the horizon for tax whistleblowers in New York.
Now in his nine month as attorney general, New York’s Eric Schneiderman is showing no sign of slowing down in his pursuit of whistleblower cases alleging tax fraud. Similarly, on the federal side, all indications are that the IRS will finally begin paying awards to some of the hundreds of whistleblowers who have filed complaints of significant tax noncompliance by thousands of taxpayers since the program was strengthened in 2006 with the enactment of section 7623(b) of the Internal Revenue Code. Given these developments, it looks like we are on the precipice of some exciting times for tax whistleblowers and those who believe in tax compliance and fairness.
We have previously written about New York’s unprecedented tax whistleblower statute, including in this Tax Stringer article, but here is a brief refresher. One year ago, New York expanded the reach of its False Claims Act to affirmatively include cases involving significant tax fraud. With this step, New York boldly went where the IRS and other states have so far declined to go—they brought the power of qui tam whistleblowers to help the state expose tax fraud and, at the same time, increase tax compliance. Attorney General Schneiderman, then a state senator, took the lead in securing passage of this historic legislation, and he has wasted no time as attorney general in using the power of his office and this new law to tackle tax fraud. In February 2011, he created the Taxpayer Protection Bureau to handle tax (and other non-health state False Claims Act cases) and appointed veteran Assistant Attorney General Randy Fox to head the bureau. By June, Fox reported at a symposium sponsored by the attorney general and attended by whistleblower attorneys from around the nation that his bureau was already “building a critical mass of tax cases” that were under investigation. Then, later this summer, in a move that unmistakably signaled the seriousness of his commitment to tax cases, Schneiderman recruited Daniel Smirlock, who had been serving as counsel and deputy commissioner at the New York State Department of Taxation and Finance, to join the Taxpayer Protection Bureau.
With Smirlock’s addition to the team, the word is that the whistleblower community should “stay tuned” for announcements about tax fraud false claims actions under New York’s new statute. Indeed, there have even been whispers that New York tax whistleblower cases could be forthcoming in the upcoming months and even possibly before the end of 2011. Wow. Nothing would more compellingly demonstrate the power and nimbleness of New York’s tax whistleblower statute than to see that it has produced a significant tax whistleblower case in such short order.
Nimbleness is not a word that has been used to describe the enhanced IRS whistleblower program under IRC section 7623(b). To the contrary, the program has been plagued by complaints that it is frustratingly slow-moving, overly bureaucratic, and not transparent to whistleblowers. Nonetheless, as we approach the fifth anniversary of the new IRS program, which mandated increased whistleblower awards in cases where the tax liability (together with interest, penalties and additions to tax) exceeds $2 million, the evidence is growing that the program has generated solid leads and that those leads are about to bear fruit. Judging from statistics recently released by the IRS Tax Whistleblower Office, the federal program is bringing in more and better tips of tax noncompliance than ever. Many of these tips will inevitably lead in the coming year (and years) to the payment of significant taxpayer awards under the new statute. Such successes will, the thinking goes, breed more tips and thus more success.
Indeed, in its FY 2010 Annual Report to Congress, the IRS Whistleblower Office reported that in 2010 it had received 431 submissions alleging violations meeting the $2 million threshold for 5,429 taxpayers, the greatest number of noncompliant taxpayers identified by whistleblowers in a single year (up from 2,150 in FY 2009). The report noted that many of the whistleblowers “claimed to have inside knowledge of the reported transactions, often with extensive documentation.” Altogether, since 2007 the IRS has received 1,328 whistleblower submissions that meet the section 7623(b) $2 million threshold against 9,532 taxpayers. Given this impressive volume of complaints, which have presumably been under active IRS scrutiny, it is not surprising that the report also confirmed that the Whistleblower Office expects to begin paying awards for section 7623(b) cases in the second quarter of FY 2011. To date, there has only been one public report of such an award, and that report came from the whistleblower’s attorney and not the IRS.
Given these IRS numbers and the buzz regarding the New York program, the whistleblower community should indeed “stay tuned” for developments in the coming months.
MN Joint Venture Fined for False Claims of DBE Use
Posted by John Sinatra - 08/25/11 at 09:08:20 amAccording to an August 24, 2011, U.S. Department of Justice press release, Minnesota Transit Constructors Inc. (MnTC), a joint venture comprised of Granite Construction, C.S. McCrossan Inc., and Parsons Transportation Group, as well as a number of subcontractors, have agreed to pay the United States to resolve allegations that the joint venture knowingly submitted false claims related to a federally funded transit construction project in Minneapolis. According to the press release, “the companies falsely claimed that they had used Disadvantaged Business Enterprises (DBEs) for part of the work on the project when they had not.” The joint venture had been the prime contractor on the project to design and build the Hiawatha Light Rail Transit System, a light-rail line linking downtown Minneapolis-St. Paul International Airport and the Mall of America. According to the government, “to obtain and maintain their contract, MnTC and its subcontractors were required to comply with the DBE regulations and to accurately report their DBE contracting. MnTC claimed that materials and services for the project were provided by DBEs, when in fact they were provided by non-DBE subcontractors, and the DBEs were merely extra participants used to make it appear as if a DBE had performed the work.”
What Laws Are Important Enough to Trigger False Claims Act Liability?
Posted by Reena Dutta - 07/22/11 at 05:07:47 pmFalse Claims Act liability has been based on defendants falsely certifying their compliance with laws and regulations. But in deciding which laws and regulations can be used as a basis of this type of liability, such that defendants deserve the huge fines and penalties of the False Claims Act, courts often have to make subjective decisions about what laws and regulations are “important” enough for this type of liability.
To take a recent example, in United States ex rel. Wilkins v. United Health Group, Inc., 2011 U.S. App. LEXIS 13322 (June 30, 2011), the Third Circuit had to decide which laws and regulations among the hundreds of thousands imposed on Medicare participants were sufficiently seriously to merit False Claims Act liability through their violation.
It first held that the relators’ allegations that defendants violated Medicare marketing regulations were insufficient to state a claim. Specifically, the relators in this case claimed that defendants used the following improper practices: (1) using marketing flyers that CMS didn’t approve, (2) engaging in marketing activities in waiting rooms of doctor’s offices, (3) allowing non-licensed individuals to engage in marketing activities, (4) using an excessive number of sales representatives at presentations, (5) asking people to raise their hands at Medicare presentations if they were “dual-eligible” for Medicare and Medicaid, (6) chasing people in supermarkets to ask if they were dual eligible, (7) using agents to engage in door-to-door solicitation, and (8) giving out prizes at Medicare presentations in excess of $15 in value.
The court held that the government’s payments of defendants’ Medicare claims were not conditioned on their compliance with marketing regulations. Specifically, the court noted that, when proceeding under a false certification theory, compliance with the regulation allegedly violated must be a condition of payment from the government. And, even though federal regulations provided that Medicare could terminate a contract with a defendant that failed to comply with marketing guidelines, the court noted that, since the government allowed a 30-day period for correction, the violations were correctible and, if corrected, would allow a defendant to continue as a Medicare participant.
Interestingly, the court seemed to acknowledge its subjective decision-making, as it noted that “we think that anyone examining Medicare regulations would conclude that they are so complicated that the best-intentioned plan participant could make errors in attempting to comply with them.” The court also questioned the wisdom of allowing every violation of a Medicare regulation to be the basis for a False Claims Act action, and it stated that federal agencies were better suited than courts to ensure compliance with Medicare marketing regulations.
By contrast, the court upheld the relators’ claims that defendants violated the False Claims Act by falsely certifying compliance with the anti-kickback law. It noted that compliance with the anti-kickback law is “clearly” a condition of payment for Medicare. It also took some comfort in the fact that the statute contained a number of “safe harbor” payment arrangements to protect the unwary from committing violations and that the statute imposed a “willfulness” requirement, such that a defendant couldn’t be held responsible for “unknowing” conduct.
Does the line that the court is attempting to draw make sense? Are marketing regulations unimportant? Are “kickbacks” really worse than marketing plans and products through coercion and, in some cases, harassment?