More and more, we are seeing multiple and separate qui tam cases filed across various districts that, in part, contain overlapping claims, allege common sets of facts, or supplement each other in a way that, if combined, results in much stronger complaint. The problem is simple: absent consolidation and a sharing agreement, the government has a mess on its hands when trying to determine who is the “first” relator for purposes of the relators’ share.
As a result, especially in large and complex cases, the government has informally encouraged relators to combine their efforts, enter into a sharing agreement, and transfer their cases to a single district where the allegations can be consolidated in a single amended or omnibus complaint. The advantages to the government (and to the relators) are apparent. First, the complaint is broader, deeper, and more robust, and there is no need to determine who the first relator is—all desirable factors. Second, the government has access to sets of relators with subsets of information that bolster allegations and support claims, and access to relators’ counsel who may have done extensive investigation and who have an excellent handle and understanding of the facts, allegations, and legal nuances at issue.
Moreover, in the case of a parallel criminal investigation, the government has equal access to these witnesses, information, and attorneys. Relators’ counsel are not covered by Federal Rule of Criminal Procedure 6(e), nor are the relators, as witnesses. They are a tremendous source of information for the criminal investigation. Continue Reading
With respect to relators, in a matter of first impression before the U.S. Court of Appeals for the Ninth Circuit, the court held that knowingly false underbidding can support False Claims Act liability.
In Hooper v. Lockheed Martin, No. 11-55278 (9th Cir. Aug. 2, 2012), the relator was an engineer working for Lockheed, and he claimed that Lockheed defrauded the Air Force under a government contract by knowingly underbidding the contract. Lockheed argued that the estimates in its bid could not predicate liability because an estimate is merely an opinion or prediction, as opposed to a false statement. The relator, however, produced evidence that Lockheed employees were told to lower their bids without regard to actual cost. This evidence, according to the Ninth Circuit, raised a genuine issue as to whether Lockheed had the requisite knowledge when it submitted its bid for the contract. Thus, the court held that summary judgment for Lockheed on this claim was inappropriately granted and, in light of this decision, relators should be on the lookout for bids based on lower-than-actual costs as a potential basis for liability.
As to defendants, this decision includes a discussion of the “government knowledge” defense. This defense—often used by defendants—is based on the theory that, if the government is aware of the allegedly wrongful conduct, the conduct is not a basis for False Claims Act liability. Specifically, in addition to the false-bidding claim discussed above, the relator in this case also alleged that Lockheed improperly used “freeware” software and improperly conducted required testing under the contract. Lockheed, however, produced evidence that it fully disclosed the fact that it was using the freeware to the government contracting officer, and the contracting officer herself stated that the use of such freeware was not prohibited under the contract and, in fact, she approved its use. The Ninth Circuit affirmed the district court’s grant of summary judgment to Lockheed on this claim because “Lockheed submitted overwhelming evidence that it shared with the Air Force…the use of [the freeware] and also disclosed…its testing procedures.” This holding provides support for the viability of the government knowledge defense and should encourage defendants to avert False Claims Act liability by fully disclosing their acts to government officials and obtaining their approval.
People considering becoming whistleblowers to expose a government fraud often ask what the process will be like. They want to know what it is like to be a relator in a False Claims Act, or qui tam, case. While no one answer to that question fits all situations, there are some general answers that tend to hold true across the cases. I can think of three words to describe the experience – work, patience, and satisfaction.
The “work” phase of the case involves working with counsel and then government lawyers and investigators to explain, understand, and develop the facts of the case. The work in a False Claims Act case usually begins when the relator collaborates with his or her legal team to put together the complaint and the disclosure statement, which become the roadmap for government lawyers and investigators. The work continues when the whistleblower teaches the government about the fraud, the key facts, and the key players. And the work frequently recurs sporadically during the government’s investigation, as the relator and counsel respond to government questions about documents and interview statements.
The “patience” concept reflects the reality that these cases typically take several years to reach resolution. Relators must be patient and able to cope well with periods of silence from the government – months when government feedback becomes limited, or the government’s investigation proceeds outside of the view of the relator. For the most part, relators who are counseled in advance about the typical lifespan of a False Claims Act case fare well on the patience front.
Finally, relators often feel great “satisfaction” from their work in exposing a government fraud and helping the government investigate it. This satisfaction occurs throughout the process, as the relator’s input often becomes a vital part of the investigation. The satisfaction can continue, of course, in the event that a favorable resolution produces a relator’s share of the government’s recovery. Most of all, relators are happy to be doing the right thing.
A “good” relator will have a better experience in this process. What makes a good relator? Several things. First, a good relator has accurate information that can be corroborated by documents or other witnesses. A good relator has credibility and has confidence in the facts he or she is alleging. A good relator enjoys the opportunity to sit with government lawyers and investigators to explain the fraud, the details, and the actors involved. A good relator is able to set aside irrelevant gripes he or she may have against the target company and has the ability to focus on the fraud at issue. Lastly, a good relator responds well to the work required, has a reasonable amount of patience, and is happy to do the right thing by exposing the government fraud.
While the federal False Claims Act gets the big headlines and the correspondingly big recoveries, it is important not to forget that a number of states have their own false claims acts under which relators can bring claims that also have the potential for significant monetary recoveries. States with these acts tend to fall into two categories: states with generally applicable false claims acts (like the federal law) and states that limit their acts to health care fraud.
There is also significant legislative activity taking place at the state level regarding false claims acts. For example, Georgia, which had a Medicaid-only false claims act, just expanded their act to encompass all false claims. Washington, which had no false claims act, just passed a Medicaid-only false claims act that became effective in June 2012.
Below is a list of states and their corresponding false claims act statutes. States with an asterisk have false claims acts without qui tam provisions (meaning that only the government can enforce those statutes). This list is intended to be a general guide only, and it is important to carefully check each statute to determine whether it is applicable to your claim. Continue Reading
St. Jude Medical Inc. has settled, for $3.65 million, federal False Claim Act allegations arising from a qui tam case in which the relators alleged that the company inflated the cost of replacement pacemakers and defibrillators purchased by the Departments of Defense and Veterans Affairs, the U.S. Department of Justice announced recently.
According to the press release, St. Jude Medical makes and sells cardiovascular and implantable neurostimulation medical devices. The settlement resolves whistleblower allegations that St. Jude “actively marketed its pacemakers and defibrillators by touting the generous credits available should a device need to be replaced while covered under warranty.” At the same time, St. Jude “allegedly knew that it failed to grant appropriate credits to the purchasers of devices in a large number of cases where a product was replaced while still under warranty.” As a result, the United States contended that St. Jude submitted invoices to Department of Veterans Affairs hospitals and Department of Defense military treatment facilities that overstated the cost for replacement pacemakers or defibrillators.
This settlement resolves allegations initially brought by two whistleblowers in federal court in the District of Massachusetts under the qui tam, or whistleblower, provisions of the False Claims Act. The whistleblower portion of the settlement will be $730,000, or 20 percent. As stated in the press release, “[t]he claims settled by this agreement are allegations only, and there has been no determination of liability.”
On April 19, 2012, Attorney General Eric T. Schneiderman filed a groundbreaking lawsuit against Sprint-Nextel Corporation for deliberately under-collecting and underpaying millions of dollars in New York State and local sales taxes. The lawsuit was brought under the New York False Claims Act, which, unlike its federal counterpart, expressly permits cases involving tax fraud.
Although the law has been on the books since August 2010, the Sprint lawsuit is the first case to be brought under the New York False Claims Act. Since the law was passed, the chief of the Tax Protection Bureau of the Attorney General’s Office, Randy Fox, has been scouring the state for a case that would send a message to the taxpayers of New York. Mr. Fox launched an investigation of Sprint’s billing practices after reviewing the allegations in a whistleblower complaint that alleged a seven-year tax avoidance scheme by the telecommunications giant. According to the complaint, Sprint had actual knowledge that New York State imposes sales tax on the entire amount of fixed monthly charges for wireless voice services, yet it failed to collect and pay those taxes on about 25 percent of its receipts for these “flat-rate” calling plans.
Mr. Schneiderman claims that Sprint’s conduct was motivated by an effort to reduce the cost of its product and thereby gain a competitive advantage over its competitors. Moreover, it is alleged that the unlawful actions of Sprint cost the State of New York more than $100 million in sales tax revenue. Under New York law, if Sprint is found liable, it may have to pay three times its underpayment, plus penalties. Depending on the level of participation in the prosecution of this case and the value of the information provided to the Attorney General, the whistleblower may receive between 15 and 25 percent of the amount collected by New York State.
Because of the amount at issue, the Sprint case is likely to set the stage for future tax whistleblowers. And, in the meantime, the Attorney General’s Office will be looking for more inside information from whistleblowers with knowledge of significant tax avoidance schemes.
The U.S. Department of Justice recently announced an $18.5 million False Claims Act settlement in a case brought by two whistleblowers against LifeWatch Services Inc., an Illinois-based company. The firm allegedly improperly billed Medicare for ambulatory cardiac telemetry (ACT) services, which, according to the Justice Department’s press release, are “a form of cardiac event monitoring that use cell phone technology to record cardiac events in real time without patient intervention.”
As stated in the press release, Medicare reimbursed these services at a rate of between $750 and $1200 and traditional event monitoring services at a rate of roughly $250. According to the qui tam complaints, LifeWatch was aware that Medicare reimbursement was unavailable for patients who had experienced only mild or moderate palpitations. The complaints further alleged that LifeWatch “nonetheless submitted claims to Medicare for ACT services for such patients using a false diagnostic code in order to have the claims paid. In addition, according to the complaints, LifeWatch improperly induced Medicare claims for monitoring services by providing valuable services in the form of full-time employees to several hospitals and medical practices without charge.” The relators alleged that these services amounted to kickbacks.
As part of the settlement, the relators will receive approximately $3.4 million plus interest as their share of the settlement proceeds.
March 1, 2012, was a big day for New York State taxpayers, as both the state and federal governments announced significant settlements impacting the state. First, New York Attorney General Schneiderman announced two large settlements under the New York False Claims Act. Both settlements involve pharmaceutical companies, Dava Pharmaceuticals, Inc. and KV Pharmaceutical Company, with Dava misclassifying drugs to evade payments to Medicaid, and KV failing to advise the Centers for Medicare & Medicaid Services (CMS) that two unapproved drugs were not covered by federal and state health care programs, thereby improperly receiving reimbursement for those drugs. You can read details of the Dava and KV pharmaceutical settlements here.
Not to be outdone by their state counterparts, the U.S. attorney for the Southern District of New York, Preet Bharara, announced a settlement with Beth Israel Medical Center, where Beth Israel admitted to fraudulently inflating its fees for services provided to Medicare patients, leading to the government to pay more than the services actually cost. Read about the Beth Israel settlement here.
These recent settlements are in line with what’s happening at the national level. A recent USA Today article, notes that about 36 percent of the approximately $16 billion recovered by the government in health care whistleblower fraud cases has come in since 2009. And this trend can be expected to continue—according to the article, HHS Secretary Kathleen Sebelius recently announced that her budget includes an additional $300 million to investigate health care fraud.
A qui tam case filed in federal court in Maryland has yielded an $11 million False Claims Act settlement. According to the Department of Justice, Dava Pharmaceuticals, Inc. has agreed to settle allegations that it violated the False Claims Act “by misreporting drug prices in order to reduce its Medicaid Drug Rebate obligations.” The settlement resolves allegations that “Dava and its corporate predecessors knowingly underpaid their rebate obligations under the Medicaid Prescription Drug Rebate Program,” which requires drug companies to pay quarterly rebates to state Medicaid programs “based, in part, on whether a drug is a ‘generic’ or ‘branded’ product and the difference between what the health care program paid for the drug and prices paid by other purchasers.”
According to the government, Dava violated the False Claims Act by incorrectly treating its version of the drugs cefdinir, clarithromycin, and methotrexate as generic drugs, which lowered the overall percentage rebate payable to Medicaid. In addition, Dava “incorrectly calculate[ed] average manufacturer prices for its versions of the drugs cefdinir, clarithromycin, methotrexate, and rheumatrex.” As a result, the government alleged that Dava underpaid drug rebates to Medicaid.
Of this $11 million, $5.7 represents the federal government’s portion, and over $5 million will be paid to participating states. Additional amounts will be paid to public health services entities. As part of the settlement, the qui tam whistleblower who brought the case will receive 15 percent of the $11 million, according to the government’s press release.
Data 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 interagency task force, the Health Care 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.