In recent years, elected and appointed members of the federal government and others have estimated that seven percent—or as much as 15 percent or 20 percent—of federal spending is consumed by fraud. With the federal government spending $3.8 trillion a year, even seven percent lost to fraud equates to a quarter of a trillion dollars a year. That’s more than $800 per American, per year lost to fraud. As the government spends more and more each year, the False Claims Act and the qui tam whistleblowers it incentivizes become more and more important. In fact, the Justice Department is recovering record amounts under the False Claims Act—$5 billion alone last year. But as the scale of these recoveries demonstrates, there is still a lot of fraud left every year for whistleblowers to uncover and report.
Relators who have claims based on frauds that extend farther than the False Claims Act’s statute of limitations are in for good news—a recent decision regarding the Wartime Suspension of Limitations Act may mean that claims that would have been time-barred under the False Claims Act may still be actionable.
The False Claims Act provides that a claim under the act cannot be brought: 1) more than six years after the date of the violation, or 2) more than three years after the date when facts underlying the violation are known or reasonably should have been known by the relevant government official, but in no event beyond 10 years from the date of the violation. But a little known statute called the Wartime Suspension of Limitations Act (WSLA), 18 U.S.C. § 3287, provides that the running of any statute of limitations for an offense involving fraud against the United States is suspended when the United States is “at war” and remains suspended until five years after the termination of hostilities.
It has not been clear, however, whether the WSLA applies to relator actions under the act, with a district court holding that it did not. But the U.S. Court of Appeals for the Fourth Circuit recently issued a decision rejecting that holding and unequivocally finding that the WSLA did apply to actions brought by relators under the False Claims Act. Continue Reading
According to the Justice Department, Par Pharmaceutical Companies Inc. recently pleaded guilty and agreed to pay $45 million to resolve its liability for the promotion of prescription drug Megace ES “for uses not approved as safe and effective by the Food and Drug Administration (FDA) and not covered by federal health care programs.” The court fined Par $18 million and ordered $4.5 million in criminal forfeiture. Par also agreed to pay $22.5 million to resolve its civil liability.
The settlement resolves qui tam lawsuits that had been filed under the whistleblower provisions of the False Claims Act. As part of this resolution, the relators who brought these cases will receive $4.4 million.
According to the government’s press release, Par had been charged with misbranding Megace ES in violation of the Federal Food, Drug and Cosmetic Act. Specifically, Megace ES “was approved by the FDA to treat anorexia, cachexia, or other significant weight loss suffered by patients with AIDS. The Megace ES distributed nationwide by Par was criminally misbranded because its FDA-approved labeling lacked adequate directions for use in the treatment of non-AIDS-related geriatric wasting, a use that was intended by Par but never approved by the FDA. The FDCA requires companies such as Par to specify the intended uses of a product in its new drug application to the FDA. Once approved, a drug may not be distributed in interstate commerce for unapproved or ‘off-label’ uses until the company receives FDA approval for the new intended uses.” Continue Reading
The federal government recently settled a $15 million False Claims Act (FCA) case against American Sleep Medicine LLC, according to a recent Justice Department press release. In particular, American Sleep Medicine will pay $15,301,341 to resolve Medicare fraud and TRICARE fraud allegations that it charged for ineligible sleep diagnostic services.
According to the release, American Sleep “owns and operates 19 diagnostic sleep testing centers throughout the United States, including in Alabama, California, Delaware, Florida, Illinois, Indiana, Kansas, Kentucky, Maryland, Missouri, New Jersey, Tennessee, Texas and Virginia.” Its primary business “is to provide testing for patients suffering from sleep disorders such as obstructive sleep apnea. The test results are used by doctors to determine the most appropriate course of treatment for patients. The most common tool used to diagnose sleep disorders, particularly sleep apnea, is a procedure called polysomnographic diagnostic sleep testing.” But the federal government’s requirements for reimbursement for this require that initial sleep studies be conducted by licensed technicians or technicians certified by a state or national credentialing body. According to the allegations, brought by a qui tam relator—or whistleblower—the government was improperly billed because diagnostic testing services were performed by technicians who lacked the required credentials or certifications, when American Sleep knew this violated the law.
As a result of this FCA settlement, the relator will receive his bounty of more than $2.6 million. Also as part of the deal, American Sleep entered into a Corporate Integrity Agreement with the Office of Inspector General of the Department of Health and Human Services, which requires “enhanced accountability and wide-ranging monitoring activities conducted by both internal and independent external reviewers.”
A False Claims Act case can be brought by a whistleblower (relator) to recover funds on behalf of the federal government. The government then has the option to “intervene” and proceed with the action. If the government does intervene, it has the primary role in prosecuting the action, although the relator remains entitled to a percentage of any recovery. Even if the government declines to intervene initially, it can later intervene upon a showing of “good cause.”
Government intervention can be the turning point in a False Claims Act case. Specifically, the Department of Justice statistics show that, for cases filed in fiscal year 2012, settlements and judgments in qui tam (or relator-initiated) cases where the government intervened amounted to approximately $670 million dollars. By contrast, for qui tam cases where the government did not intervene, settlements and judgments amounted to only approximately $6 million in the same time period.
Government intervention, therefore, is extremely helpful to the success of a False Claims Act case. In a recent case, United States v. Aseracare, Inc., 2012 WL 5289475 (N.D. Ala. Oct. 24, 2012), the court widely construed the government’s ability to intervene in a case under the act, even where there were problems with the relator’s initial suit and where the government initially declined intervention. In Aseracare, the government initially declined to intervene and then later asked the court to allow it to do so because of new evidence it discovered. Defendants, however, argued that the lawsuit itself failed because it was not the first-filed suit under the act and thus the government could not properly intervene. Defendants also argued that the government did not show “good cause” for its intervention request after its initial declination. Continue Reading
The Justice Department yesterday reported $4.9 billion in False Claims Act recoveries for fiscal year 2012, which is the largest single-year recovery in history.
The recoveries spanned several sectors of the economy. In the health care arena, the Justice Department reports that, “[e]nforcement actions involving the pharmaceutical and medical device industry were the source of some of the largest recoveries this year.” The department recovered nearly $2 billion in cases alleging false claims for drugs and medical devices under federally insured health programs and, in addition, returned $745 million to state Medicaid programs.” The recoveries from major pharmaceutical companies addressed several drugs allegedly marketed for off-label use. They also addressed cases involving the alleged payment of kickbacks to physicians to prescribe certain drugs. Some of the cases addressed alleged false and misleading statements concerning drug safety and the alleged underpayment of rebates owed under the Medicaid Drug Rebate Program, and they include cases alleging inaccurate, unsupported, or misleading statements about drug safety to increase sales.
The Justice Department also reported successes in its “aggressive pursuit of financial fraud, including fraud in the housing and mortgage industries that came to light in the wake of the financial crisis.”
With respect to procurement fraud, “the department recovered $427 million in false claims for goods and services purchased by the government.” Noteworthy is its recovery from a software manufacturer that allegedly overcharged the government “by failing to disclose substantially lower prices offered to its commercial customers.”
Fiscal 2012 was also a very good year for whistleblowers. Of the $4.9 billion in recoveries this year, “a record $3.3 billion was recovered in whistleblower suits,” and the department reported “$439 million in [whistleblower] awards in fiscal year 2012.”
In appreciation of whistleblowers’ assistance, Principal Deputy Assistant Attorney General noted, “[t]he whistleblowers who bring wrongdoing to the government’s attention are instrumental in preserving the integrity of government programs and protecting taxpayers from the costs of fraud. We are extremely grateful for the sacrifices they make to do the right thing.”
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 included a whistleblower program allowing individuals who report original information to the SEC leading to a recovery exceeding $1 million to obtain between 10 percent and 30 percent of the recovery. It also included a prohibition on retaliation.
It has been about one year since the SEC established its Office of the Whistleblower, and according to Sean X. McKessy, the chief of that office, the SEC has received almost 3,000 securities law violation tips, or about eight tips per day. .
But the most hotly litigated issue with Dodd-Frank whistleblowers isn’t the bounty they receive or the tips they provide, but the scope of protection they have against retaliation. Specifically, the Dodd-Frank Act defines a whistleblower as “any individual who provides . . . information relating to a violation of the securities laws to the [SEC]. . . .” [15 U.S.C. § 78u-6(a)(6)]. But the anti-retaliation provision prohibits adverse action against a whistleblower arising out of disclosures protected under Sarbanes-Oxley; the Securities Exchange Act of 1934; and any other law, rule, or regulation subject to the jurisdiction of the SEC. Id. at § 78u-6(h)(1)(A).
There is therefore a tension between these provisions. Specifically, the statute defines whistleblowers as those who report violations to the SEC, while the anti-retaliation section protects whistleblowers against retaliation for much broader conduct, including internal reporting. Continue Reading
After years of complaints from whistleblowers and other interested parties, the IRS whistleblower program—which was enhanced in 2006—has finally begun to show some signs of success. Consider:
- As my colleague John Sinatra reported, the IRS recently awarded a whopping $104 million to imprisoned UBS whistleblower Bradley Birkenfeld, the first award under the 2006 program
- Just last month, the IRS awarded $38 million to another whistleblower
Can it be, as Forbes recently reported, that “the days ahead look bright for whistleblowers and the IRS whistleblower program”? With a backlog of significant whistleblower cases filed after 2006 slowly churning through the IRS process, it is a safe bet that more cases are edging closer to completion and that the slow trickle of announcements from whistleblower attorneys about awards will begin to pick up. As more awards are announced, more whistleblowers will come forward.
And there is little doubt whistleblowers will be emboldened by the $38 million dollar awarded in October. The whistleblower’s attorney said that his client exposed a corporate tax avoidance scheme involving “aggressive tax planning” by one of the nation’s largest corporations. Based on the size of the award, it is conservatively estimated that the IRS collected more than $126 million in federal corporate taxes from the company. Significantly, the whistleblower’s identity was never revealed nor was the identity of the public corporation. In fact, the target corporation did not even know that the IRS’s interest in its “aggressive” position was sparked by a tip from a whistleblower. Continue Reading
The U.S. attorney for the Eastern District of New York yesterday announced that the United States will intervene in a False Claims Act case that began in April 2007, when a qui tam relator first filed the whistleblower lawsuit under seal. In this case, the federal government is joining in the whistleblower’s lawsuit against the City of New York, seeking $2 million in damages, penalties, and costs for overcharging Medicaid.
In particular, according to the U.S. attorney’s press release, the United States has intervened in Ohlmeyer ex rel. United States of America v. City of New York, where the United States alleges that “the City of New York Department of Education (DOE) submitted false claims to Medicaid for psychological counseling services to special education students in the New York City public schools.” According to the release, “Medicaid pays DOE a flat fee of $223 for each student to whom DOE provides at least two psychological counseling sessions in a month. Medicaid pays nothing if an individual student receives fewer than two counseling sessions in a month.” Thus, the government alleges that, “between 2001 and 2004, DOE knowingly billed Medicaid for counseling services to students even though it provided fewer than two counseling sessions per month to individual students.”
Of course, these are just allegations at this stage, and the city can be expected to defend itself. This case is noteworthy, however, because it highlights that long-quiet qui tam cases sometimes take many years to mature into a government intervention decision. The lesson here is that a relator and relator’s counsel must be patient and plan for an initial time horizon of a few years to as many as five or six years.
According to numerous media reports citing his attorneys, former UBS Banker Bradley Birkenfeld has received a $104 million tax whistleblower reward for his role in exposing alleged secret Swiss banking schemes designed to enable U.S. taxpayers to evade taxes. The whistleblower’s revelations led to a $780 million settlement from UBS as well as tens of thousands of taxpayer coming forward in exchange for amnesty. The IRS’s tax whistleblower program provides a bounty or reward of up to 30 percent of the government’s recovery. Experts on both sides of these cases believe that the size of the reward will ensure that future tax whistleblowers are encouraged and incentivized to come forward with details of other tax schemes.