As the holiday season approaches and New Yorkers struggle with finances due to COVID-related limitations imposed on business, the government has been searching for ways to alleviate the hardships faced by many. For example, Attorney General Letitia James and Governor Andrew Cuomo recently announced that the Office of the Attorney General (OAG) renewed, for the eighth time, an order to halt the collection of medical and student debt owed to the State of New York, including those matters specifically referred to the OAG for collection. However, when one hand giveth, the other taketh away. Because the State treasury has also suffered tremendously during the pandemic, agencies are under pressure to recoup losses. Thus, like other agencies, the Medicaid Fraud Control Unit (MFCU) of the OAG is working harder than ever to prosecute health care fraud and recapture State funds and penalties.
Roopa Chakkappan authored an article titled, "DOJ’s $678 Million Novartis Settlement for False Claims Act and Anti-Kickback Statute Violations—Changing Big Pharma’s Expectations for Compliance Programs," which was posted on the American Health Law Association's (AHLA) website.
The U.S. Department of Justice, Civil Division has published a substantial amount of data on the historical success of whistleblower cases and investigations. The statistics show that whistleblower litigation under the False Claims Act (often referred to as “quit tam” litigation) continues to be the government’s primary weapon in combating fraud.
On February 7, 2020, the Tenth Circuit affirmed a district court’s decision to grant summary judgment in favor of the defendant hospital. See United States ex rel Janssen v. Lawrence Memorial Hospital, __ F.3d __ (10th Cir. 2020). In doing so, the Tenth Circuit reinforced the rigorous materiality standard set forth in the Supreme Court’s 2016 Escobar decision.
Fiscal Year 2019 was another banner year for False Claims Act recoveries, with the DOJ obtaining more than $3 billion in settlements and judgments under the Act. Of that amount, $2.6 billion came from the health care industry, and this is the 10th consecutive year that health care fraud settlements and judgments have exceeded $2 billion.
Chicago lawyer Stephen Diamond has made quite a name for himself in recent years for his perceived abuse of the Illinois False Claims Act (“FCA”). Many believe Diamond is misusing the FCA or is using it for self-serving reasons not consistent with the FCA’s intent.
The Fourth Circuit Court of Appeals is poised to decide an issue that could dramatically affect the amount in damages that the U.S. Government and a whistleblower can prove and collect in a successful False Claim Act case.
The IRS Whistleblower Award Program has paid over $230 million in awards over the last three fiscal years, according to its most recent report to Congress. The awards averaged over $650,000 each, and average about 18% of the amount collected in each case. The program received over 14,000 new claims during FY 2014. According to the report, the award program exists to provide whistleblowers with an incentive to report “significant tax noncompliance” to the IRS.
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A recent decision from the U,S. District Court for the District of Columbia illustrates the power of the government to block False Claims Act settlements between relators and defendants. United States ex rel. Landis v. Tailwind Sports Corp., 2015 U.S. Dist. LEXIS 46140 (D.D.C. April 9, 2015) involves former professional cyclist Floyd Landis, who brought FCA violations against Lance Armstrong and other defendants, including Armstrong’s agents and their company, called Capital Sports and Entertainment. The case was based on Landis’s allegations that defendants submitted claims for sponsorship payments to the U.S. Postal Service while knowing that the team had been using performance-enhancing drugs in violation of the sponsorship agreement.
Radiation oncology provider Adventist Health System Sunbelt Healthcare Corporation has agreed to pay more than $5 million to resolve False Claims Act allegations that it provided “radiation oncology services to Medicare and TRICARE beneficiaries that were not directly supervised by radiation oncologists or similarly qualified persons,” according to a recent Department of Justice press release.
Adventist operates a large network of hospitals in the South and the Midwest. According to the release, “[r]adiation oncology services provided to patients served by Medicare and TRICARE, the Department of Defense’s health care program, must be directly supervised by a radiation oncologist or similarly qualified personnel.” The qui tam FCA case alleged that Adventist “violated this supervision requirement for radiation oncology services provided to federal health care program beneficiaries at several Florida locations, including in Altamonte Springs, Daytona Beach, Deland, Kissimmee, Orange City, Orlando, Palm Coast and Winter Park. These services included radiation simulation, dosimetry, radiation treatment delivery and devices, and intensity-modulated radiation therapy.”
The case had been initiated by a physician who had been employed as a radiation oncologist. The whistleblower will receive $1,082,500 as his relator’s share.
On October 10, 2014, the Justice Department and the U.S. Department of Health and Human Services Office of Inspector General (HHS-OIG) jointly announced that Extendicare Health Services Inc. (Extendicare) and its subsidiary Progressive Step Corporation (ProStep) agreed to pay $38 million to the United States and eight states for False Claims Act liability. Approximately $2 million of the total settlement amount will be awarded to the whistleblowers who revealed the fraudulent conduct at issue by bringing suit under the False Claims Act.
The Securities and Exchange Commission whistleblower program, which provides awards to certain whistleblowers who report securities laws violations to the SEC, encourages would-be whistleblowers to comply with internal reporting programs first.
The SEC’s whistleblower rules do this in at least two ways. First, the SEC weighs the whistleblower’s participation in the firm’s internal compliance program as a factor that may increase the whistleblower’s eventual award. And the SEC considers interference with internal compliance programs to be a factor that may decrease any award. Second, the SEC’s whistleblower rules give the would-be whistleblower the benefit of the earlier date on which the internal compliance report was made, so long as the whistleblower makes his or her SEC filing within 120 days. In that situation, the SEC form requests a copy of the internal reporting. In these ways, the SEC encourages compliance with companies’ internal compliance programs, without sacrificing whistleblower reporting to the SEC.
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John Sinatra is a partner in the Business Litigation
Practice at Hodgson Russ LLP. You can reach him at jsinatra@hodgsonruss.com.
In a recent False Claims Act case from the Eighth Circuit, Rille v. PricewaterhouseCoopers LLP, 2014 U.S. App. LEXIS 6597 (8th Cir. April 10, 2014), the relators won an important victory against the government relating to their right to obtain a portion of the settlement proceeds of a claim under the act. Specifically, according to the act, if the government “intervenes” in a case brought by relators, relators are entitled to a portion “of the proceeds of the action or settlement of the claim.” 31 U.S.C. 3730(d)(1). But in Rille, the relators had to fight not only defendants, but also the government to get the recovery they were entitled to under the act. The Eighth Circuit – in no uncertain terms – sided with the relators.
According to the IRS Oversight Board’s recent report to Congress, the IRS paid $53 million last year to 122 whistleblowers. This is an average of nearly $435,000 per whistleblower. The whistleblower awards last year average 14.6 percent of the amounts collected by the IRS. As noted in the report, the law requires the IRS to pay awards if the information provided “substantially contributes to the collection of tax, penalties, interest, and other amounts when the amounts in dispute are more than $2,000,000.” The award ranges are based on “percentages of the collected proceeds.” The law is designed to encourage people “with knowledge of significant tax noncompliance to provide that information to the IRS.” According to the report, the IRS “continues to receive submissions from whistleblowers, many of whom claim to have inside knowledge of the transactions they are reporting. They often provide extensive documentation to support their claims.”
John Sinatra is a partner in the Business Litigation Practice at Hodgson Russ LLP. You can reach him at jsinatra@hodgsonruss.com.
According to a press release from the Department of Justice, in fiscal year 2013, the government recovered $3.8 billion in settlements and judgments involving the False Claims Act. This is the second-largest annual recovery in history and brings total recoveries under the False Claims Act since January 2009 (when the act was significantly amended) to $17 billion. Additionally, the number of qui tam (or whistleblower) cases increased to 752 in 2013, which was 100 more than in fiscal year 2012. Recoveries in qui tam cases this year totaled $2.9 billion, with whistleblowers recovering $345 million.
The Justice Department announced last week that Johnson & Johnson will pay $1.273 billion to the federal government and most states to settle a civil False Claims Act investigation into its off-label marketing of its antipsychotic drug Risperdal. J&J will settle a criminal investigation into the matter for an additional $800 million.
Hodgson Russ is proud to represent two of the plaintiffs who blew the whistle on J&J. The team, led by Daniel C. Oliverio, included Joseph V. Sedita and Robert J. Fluskey, Jr.
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.”
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.
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.
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.
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.
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.
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.
On 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.”
As cases become more complex and multiple allegations arise, it is more and more frequently the case that multiple relators will file complaints in different districts covering, at least for the most part, common subject matter. Rarely, however, in these types of cases, can one make a definitive judgment about whether the allegations overlap, either in whole or in part, are identical, or are distinctly separate. U.S. attorneys want to be able to consolidate cases and use all of the allegations in a single False Claims Act prosecution. So what to do about the relators?
Two recent court decisions and a 2004 statute affirm that False Claims Act whistleblowers have to pay income taxes on their relator’s share of any recovery―at ordinary income rates. Because the taxation questions that arise from whistleblower’s rewards can be significant, as shown below, it remains wise for any successful relator to seek proper and current tax advice.
False Claims Act settlements are increasing dramatically in the medical industry, and many of the growing number of settlements are being paid by an unlikely target: hospitals. Over the past few months, Brookhaven Memorial Hospital Medical Center, in Long Island; Mercy Hospital, in Springfield, Massachusetts; and Southern New Hampshire Medical Center, in Nashua, New Hampshire, all resolved False Claims Act cases with considerable settlements. Most of the whistleblower claims were based on allegations of improper charges to obtain Medicare and Medicaid reimbursement.