Whistleblower Qui Tam Law Blog

McKesson Settles Fraudulent Pricing Allegations

Thu, 17 May 2012 10:45:32 -0500

Recently, McKesson Corporation agreed to pay the United States $190 million to resolve claims that it violated the False Claims Act by falsely reporting inflated Average Wholesale Prices ("AWPs") for a large number of prescription drugs, causing government to set higher reimbursement rates for those drugs. The settlement was the result of a lawsuit filed by a whistleblower under the qui tam provisions of the False Claims Act.

Fraudulent AWP schemes are not uncommon. Reimbursement rates for prescription drugs purchased by Medicaid beneficiaries generally are set using certain bench marks, such as the AWP. The AWP is the average price at which drugs are purchased at the wholesale level. In general, network pharmacies purchase prescription drugs from manufacturers or wholesalers, such as McKesson. When a Medicaid beneficiary purchases a covered drug from a network pharmacy, the pharmacy submits a claim for reimbursement to the state Medicaid agency. Although each state establishes its reimbursement formula, reimbursement generally is based on the AWP minus a certain percentage. The seller - usually the manufacturer or wholesaler - pays a rebate to Medicaid each quarter. Reporting inflated AWP data is a common fraud, as it increases payments to manufacturers and wholesalers that sell pharmaceuticals.

Here, the government alleged that McKesson, a large drug wholesaler, reported the inflated pricing data for a wide variety of brand name prescription drugs to First DataBank, a company that publishes drug prices used by most state Medicaid programs to set payment rates for pharmaceuticals, and other publishers of drug prices.

The Medicaid program is funded jointly by the Federal and state governments. The settlement resolved federal Medicaid overpayments based on McKesson's inflated pricing information. State Medicaid agencies can separately negotiate with McKesson to resolve claims based on the states' shares of the Medicaid overpayments.

According to Acting Assistant Attorney General Stuart F. Delery, "[t]his case demonstrates the Department of Justice's commitment to ensuring that Medicaid funds are expended appropriately. . . . Companies that report pricing data that affect government payment rates, whether those companies are manufacturers, wholesalers, or otherwise, are required to report that data accurately."

"This is the latest example of a corporation's intentionally manipulating the complicated system by which drug purchases are reimbursed," said U.S. Attorney Paul J. Fishman. "We have no tolerance for those who take advantage of that system to bring in more business by falsely increasing reimbursements to retailers."

"This settlement with McKesson highlights the Office of Inspector General's commitment to protecting against artificially inflated drug prices," said Inspector General Daniel R. Levinson. "Our analyses of drug price reporting practices - including the use of 'Average Wholesale Price' - have consistently identified excessive Medicare and Medicaid payments resulting from these practices."

Under the qui tam provisions of the False Claims Act, whistleblowers who report fraud and abuse in government healthcare programs, such as Medicaid, are entitled to receive a percentage of the government's recovery. Andrew M. Beato specializes in representing whistleblowers in False Claims Act litigation involving fraudulent pricing schemes by pharmaceutical manufacturers, wholesalers, and retail pharmacies, such as false AWP reporting schemes.

OIG Report Details Questionable Medicare Part D Billing Practices

Wed, 16 May 2012 11:35:51 -0500

Recently, the Huffington Post reported that the Office of Inspector General of the United States Department of Health and Human Services (OIG) issued a report on retail pharmacies with questionable Medicare Part D billing. Medicare Part D is a voluntary prescription drug benefit available to Medicare beneficiaries that went into effect on January 1, 2006. Since that time, the OIG and others have raised concerns about Part D billing. In several reports, OIG found that the program has limited safeguards in place and is vulnerable to fraud, waste, and abuse.

Moreover, recent cases have illustrated a variety of alleged fraud schemes by pharmacies. For example, one pharmacist who owned 26 pharmacies was charged with health care fraud and drug diversion. The pharmacist allegedly paid physicians to write prescriptions that were medically unnecessary and to direct patients to fill them at his pharmacies, which purportedly billed $37.7 million to Medicare.

In this report, OIG examined the Part D billing patterns of 59,000 retail pharmacies during 2009, which amounted to nearly 1 billion prescriptions. Through the study, investigators revealed contrasts between normal pharmacy practices and potential criminal behavior. Overall, the report found a pattern of questionable claims at 2,637 pharmacies around the country, including one pharmacy in Kansas that billed Medicare for more than 1,000 prescriptions for two patients in a single year. In total, Medicare paid $5.6 billion in possible fraudulent billings that year.

Certain parts of the country had an especially high rate of questionable billing practices. In Miami, nearly 20 percent of the claims submitted by pharmacies were potentially fraudulent. In Los Angeles, where 12 percent of pharmacies had questionable billings, one suburban pharmacy billed Medicare for more than $8.4 million - nine times the national average and an average of 116 prescriptions per beneficiary.

In Baltimore, Detroit, and Tampa, powerful painkillers classified as controlled substances accounted for an abnormally high share of total prescriptions billed. No pharmacies were named in the report. New York also had a high percentage of questionable claims with 9 percent.

Abbott Labs Agrees to Pay $1.5 Billion to Resolve Criminal & Civil Allegations of Off-Label Promotion of Depakote

Tue, 08 May 2012 19:03:06 -0500

Yesterday, the Department of Justice announced that Abbott Laboratories Inc. has agreed to plead guilty and pay $1.5 billion to resolve criminal and civil liability resulting from a scheme to promote its prescription drug, Depakote, for uses not approved as safe and effective by the Food and Drug Administration. The civil settlement resolves four whistleblower lawsuits filed under the qui tam provisions of the False Claims Act, which allows private citizens to file civil actions on behalf of the United States and share in any recovery. As part of yesterday's resolution, the whistleblowers, one of whom is a former Abbott sales representative in Atlanta, will share $84 million from the federal share of the settlement amount.

FDA approves drugs as safe and effective for specified uses. Under the Food, Drug and Cosmetic Act, a company in its application to the FDA must specify each intended use of a drug. After a drug is approved, the company must limit its promotional activities to only the intended uses approved by FDA. Promoting a drug for any other purposes - known as off-label promotion - renders the drug misbranded. Here, Depakote has been approved by FDA approved for the treatment of epileptic seizures, bipolar mania and the prevention of migraines. Abbott pleaded guilty to promoting the drug to control agitation and aggression in elderly dementia patients and to treat schizophrenia - neither of which are FDA-approved uses of the drug.

In the criminal plea, Abbott admitted to maintaining a specialized sales force trained to market Depakote in nursing homes for the control of agitation and aggression in elderly dementia patients from 1998 through 2006, despite the absence of credible scientific evidence that Depakote was safe and effective for that use. Moreover, from 2001 through 2006, Abbott admitted to marketing Depakote in combination with atypical antipsychotic drugs to treat schizophrenia, even after its clinical trials failed to demonstrate that adding Depakote was any more effective than an atypical antipsychotic alone for that use.

The civil settlement goes further to include the resolution of allegations that from 1998 through 2008, Abbott unlawfully promoted Depakote for unapproved uses, including behavioral disturbances in dementia patients, psychiatric conditions in children and adolescents, schizophrenia, depression, anxiety, conduct disorders, obsessive-compulsive disorder, post-traumatic stress disorder, alcohol and drug withdrawal, attention deficit disorder and autism. Abbott's scheme included making false and misleading statements about the safety, efficacy, dosing and cost-effectiveness of Depakote for some of these unapproved uses and, moreover, that the use of Depakote to control behavioral disturbances in dementia patients would help nursing homes avoid the administrative burdens and costs of complying with Omnibus Budget Reconciliation Act regulatory restrictions applicable to antipsychotics.

The civil settlement also covers allegations that Abbott violated the Anti-Kickback Statute by offering and paying illegal kickbacks to healthcare providers and long term care pharmacies to induce them to promote and prescribe Depakote and improperly and unduly influence the content of company-sponsored Continuing Medical Education programs.

107 Arrested and Charged in a Nationwide Medicare Fraud Bust

Mon, 07 May 2012 13:26:59 -0500

The Department of Justice, along with the Department of Health and Human Services (HHS), announced that they have charged 107 physicians, nurses, and social workers in seven cities with Medicare fraud as part of a nationwide crackdown on unrelated schemes involving approximately $452 million in false billing. Last Wednesday, hundreds of Federal agents with the Medicare Fraud Strike Force raided businesses, seized documents, and charged 107 suspects in Miami, Los Angeles, Houston, Detroit, Chicago, Tampa, and Baton Rouge. This coordinated effort involved the highest amount of false Medicare billings in a single takedown in the history of the Medicare Fraud Strike Force. HHS also has suspended or taken other administrative actions against 52 healthcare providers.

The Medicare Fraud Strike Force is a multi-agency team of Federal, state, and local investigators that combat Medicare Fraud through the use of Medicare data analysis techniques. More than 500 law enforcement agents from the FBI, HHS's Office of Inspector General, multiple Medicaid Fraud Control Units, and other state and local law enforcement agencies contributed to the nationwide bust. In addition to making arrests, Federal agents executed 20 search warrants related to ongoing strike force investigations.

According to the Department of Justice press release, the defendants are charged with a number of healthcare fraud-related crimes, including conspiracy to commit healthcare fraud, healthcare fraud, violations of the Anti-Kickback Statute, and money laundering. The charges are based on a variety of schemes involving medical treatments and services such as home healthcare, mental health services, psychotherapy, physical and occupational therapy, durable medical equipment, and ambulance services. Moreover, the defendants are alleged to have participated in schemes to submit false and fraudulent claims to Medicare for treatments that were either medically unnecessary or never provided. In many instances, the defendants are alleged to have paid illegal kickbacks to facilitate the fraudulent billing schemes.

The Government is Poised to Ramp up FIRREA Investigations

Fri, 04 May 2012 14:24:09 -0500

Recently, Reuters reported that an Obama administration task force created in January 2012 to investigate misconduct that caused the financial crisis is set to ramp up cases under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989. This statute, often referred to as FIRREA, was passed in the wake of the savings-and-loan scandals in the 1980s. The Obama task force, which is in the Justice Department, used FIRREA earlier this year when it issued more than a dozen civil subpoenas to top financial institutions, including Citigroup, requiring the production of documents related to mortgage-backed securities offerings between 2006 and 2008.

FIRREA gives the Department of Justice broad investigative tools, including the ability not only to subpoena documents, but also to take testimony from individuals, an ability prosecutors are not normally afforded in civil cases. Moreover, there are provisions that provide financial incentives to whistleblowers who uncover and report fraud. Under these provisions, whistleblowers are entitled to a percentage of the first $10 million recovered by the government. For more information on the whistleblower provisions, click here.

The task force, which includes the Justice Department, the SEC, the FBI and the Department of Housing and Urban Development, and others, is charged with investigating the pooling and sale of home loans that contributed to the financial crisis. The co-chairs meet formally every week and talk almost every day to coordinate on "a range of investigations," a Justice Department official said, on condition of anonymity. The Department of Justice has requested a $55 million increase for the fiscal year beginning in October to increase efforts to combat financial and mortgage fraud. "Significant efforts continue to move forward and if they uncover evidence of fraud or other illegal conduct, we will pursue such conduct aggressively," DOJ spokeswoman Adora Andy said.

While FIRREA was initially designed to prosecute individuals who defraud federally insured financial institutions, it also allows for civil charges for mail and wire fraud. The law allows for civil penalties of up to $1 million for each violation and up to $5 million for continuing violations, with a 10-year statute of limitations.

New York Attorney General Files $300 Million False Claims Act Lawsuit against Sprint

Mon, 23 Apr 2012 13:30:52 -0500

On April 19, 2012, New York Attorney General Eric T. Schneiderman filed a lawsuit against Sprint-Nextel Corp. for "deliberately under-collecting and underpaying millions of dollars in New York state and local sales taxes on flat-rate access charges for wireless calling plans." This lawsuit supersedes a qui tam lawsuit filed by a whistleblower under New York's robust False Claims Act in March 2011, just after Schneiderman created the Taxpayer Protection Bureau specifically to work with whistleblowers and enforce the False Claims Act in tax and other government fraud cases.

This is the first tax enforcement lawsuit filed under the New York False Claims Act. New York's False Claims Act empowers whistleblowers and the State to bring lawsuits against companies or individuals who defraud the government, and imposes treble damages, penalties, and attorney's fees against wrongdoers. Whistleblowers are eligible to receive up to 25 percent of the funds recovered by the government. In 1986, Congress amended the Federal False Claims Act to incentivize whistleblowers to report fraud against federal government programs. Twenty-nine states followed suit, passing their own False Claims Acts. New York's statute is the only False Claims Act to expressly include tax fraud. With the filing of this superseding complaint by Schneiderman, the Attorney General will take over the action from the whistleblower on behalf of New York's taxpayers.

According to the Attorney General's complaint, starting in 2005, Sprint illegally failed to collect and pay New York sales taxes on its revenue from fixed monthly access charges. To effectuate this scheme, Sprint repeatedly and knowingly submitted false records and statements to New York State tax authorities. Sprint concealed this practice from taxing authorities, its competitors, and its customers. Moreover, the complaint alleges that Sprint's misconduct is ongoing and growing by about $210,000 per week. This scheme was the result of Sprint's efforts to obtain a competitive advantage. The complaint alleges that right before deciding to underpay its taxes, Sprint concluded that this practice would position its calling plans as cheaper than competitors' plans by $4.6 million per month, collectively, because of sales taxes not collected and paid. New York seeks over $300 million to New York state and local governments, including school districts, and other remedies to protect New York consumers by permitting them to terminate their Sprint contracts without termination fees.

The Eleventh Circuit Court of Appeals Reverses Dismissal of Whistleblowers' Reverse False Claims Action

Tue, 17 Apr 2012 12:00:45 -0500

Whistleblowers Lucas Matheny and Deborah Loveland brought a qui tam lawsuit against Medco Health Solutions, Inc., its subsidiaries, and several individual executives, alleging violations of the reverse false claims provision of the False Claims Act. All of the corporate and individual defendants were subject to a Corporate Integrity Agreement ("CIA"), which the parent company PolyMedica entered into with the Office of the Inspector General of the U.S. Department of Health and Human Services in November 2004. The CIA required the defendants to remit payments from the government that lacked sufficient documentation and payments received in duplicate or in error.

During their time as employees, the whistleblowers became aware of a scheme by their supervisors to conceal approximately $69 million in overpayments that, under the CIA, should have been remitted to the government. They filed their qui tam lawsuit alleging that the defendants knowingly submitted false statements in a Certificate of Compliance and in random samples of patient accounts ("Discovery Samples") to the government to conceal and avoid the obligation to remit overpayments as required by the CIA. The defendants moved to dismiss for failure to state a claim upon which relief may be granted, and the United States District Court for the Southern District of Florida granted the motion. The whistleblowers appealed.

The U.S. Court of Appeals for the Eleventh Circuit reversed. The False Claims Act imposes liability on 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 U.S.C. s. 3729(a)(7). This is known as the "reverse false claim" provision of the False Claims Act because liability is based on avoiding the payment of money due to the government, as opposed to submitting a false claim to the government to secure payment. Moreover, like any False Claims Act case, the relator must meet the heightened pleading requirements under Rule 9(b) of the Federal Rules of Civil Procedure, which requires the whistleblower to plead fraud allegations with specificity, including the who, what, when, where, and how of the fraud.

In analyzing the whistleblowers' allegations under this law, the Court of Appeals found that the whistleblowers properly alleged an express contractual obligation on behalf of the defendants under the CIA to identify, report, and remit overpayments within 30 days of identification and defined that obligation in detail with references to particular contractual sections. The court found that the relators also sufficiently alleged that the Certification of Compliance and the Discovery Sample were knowingly false.

Next, the Court held that the allegations were sufficient to state a claim under both counts in the complaint. As to the first count, which alleged a false certification of compliance, the court found that the whistleblowers alleged with specificity the existence and submission of a Certification of Compliance by the defendants; that the defendants identified overpayments, but failed to report or remit the funds as required by the CIA; and the submission of the Certification played a material role in the concealment and avoidance of an obligation because the CIA required the defendants to provide an accurate account of any excess government property in their possession, and the Certificate of Compliance falsely stated the value of the property in their possession.

Former Vice-President of Bone Growth Companies Pleads Guilty to Fraud

Mon, 16 Apr 2012 14:01:52 -0500

Recently, Thomas P. Guerrieri pleaded guilty before Judge Rya W. Zobel in the United States District Court for the District of Massachusetts in Boston for violating the Anti-Kickback Statute. Under the Anti-Kickback Statute, it is unlawful to make or accept payments to furnish or arrange for the furnishing of any item or service for which payment may be made under a federal healthcare program. The Anti-Kickback statute also prohibits offering inducements or remuneration to induce healthcare providers to refer patients for services that will be reimbursed by a federal healthcare program. The purpose of the Anti-Kickback Statute arose from concerns that payoffs to those who can influence healthcare decisions will result in goods and services being provided that are medically unnecessary, substandard in quality, or harmful to patients.

Guerrieri was the former vice-president of sales at a medical device company that sold bone growth stimulators. He will be sentenced on July 11, 2012. He faces up to five years in prison, to be followed by three years of supervised release, a $250,000 fine and forfeiture. At the plea hearing, the Government informed the Court that had the case proceeded to trial, it would have proven that Guerrieri facilitated a "consulting" agreement between a New York surgeon and Guerrieri's company to induce the surgeon to prescribe the company's bone growth stimulators. The surgeon was paid tens of thousands of dollars by the company, without providing consulting services.

According to the Government, in or about Aug. 2007, the surgeon became concerned about increased government scrutiny of consulting arrangements. Even though the surgeon was paid every month, he failed to document his consulting services in required time sheets. Concerned with Government scrutiny over consulting agreements, the surgeon, Guerrieri, and a territory manager for the company falsely and fraudulently backdated time sheets going back to 2006 to make it appear as though the surgeon filled out these forms contemporaneously and performed legitimate consulting services. In addition, at the surgeon's request, Guerrieri and the territory manager obtained a letter from the company's general counsel falsely stating that the surgeon fulfilled the terms of the agreement. Guerrieri covered up this misconduct to induce the surgeon to continue to order bone growth stimulators from the company.

LifeWatch Agrees to Pay $18.5 Million to Settle Upcoding and Kickback Allegations

Wed, 11 Apr 2012 12:06:48 -0500

The Department of Justice recently announced that LifeWatch Services Inc. has agreed to pay the United States $18.5 million to resolve allegations that the company submitted false claims to federal health care programs. The settlement resolves two qui tam whistleblower lawsuits filed under the False Claims Act. The two whistleblowers, Ryan Sims and Sara Collins, both of whom are former LifeWatch sales representatives, alleged that LifeWatch defrauded Medicare by submitting false diagnostic codes for payment and using illegal kickbacks. Sims filed suit in the Western District of Washington in December 2009, and Collins filed suit in the Southern District of Ohio in May 2011.

LifeWatch's fraud centered on the provision of ambulatory cardiac telemetry (ACT) services, which are a form of cardiac event monitoring that uses cell phone technology to record cardiac events in real time without patient intervention. Traditional event monitoring requires patients to press a button when they notice a cardiac event in order to record the cardiac rhythms. During the time period alleged in the two whistleblower lawsuits, Medicare reimbursed ACT services at $750 to $1,200 and traditional event monitoring services at about $250.

Both lawsuits allege a two part scheme to defraud. First, they allege that LifeWatch improperly billed Medicare for ACT services. Specifically, LifeWatch knew that ACT services were not eligible for Medicare reimbursement for patients who had experienced only mild or moderate palpitations, but nonetheless submitted false claims to Medicare for ACT series for such patients using a false diagnostic code to have the claims paid. Second, they allege that LifeWatch improperly induced Medicare claims for its monitoring services through illegal kickbacks by providing valuable services in the form of full-time employees to several hospitals and medical practices without charge.

In addition to the civil recovery, LifeWatch has entered into a comprehensive Corporate Integrity Agreement (CIA) with the Office of the Inspector General of the U.S. Department of Health and Human Services to ensure its continued compliance with federal health care program requirements. According to Daniel R. Levinson, Inspector General of the U.S. Department of Health and Human Services, "the chief executive officer at LifeWatch as well as other corporate executives will be required to personally certify compliance with our five-year CIA" which includes provisions to monitor LifeWatch's claim submission process, sales force activities and relationships with some types of business referrals." Levinson commented that "LifeWatch allegedly tried to boost profits at taxpayer expense, and, ultimately, paid $18.5 million back to the government."

For their efforts, the whistleblowers will share $3.4 million plus interest.

Whistleblower Lawsuit Alleges that MetLife and Prudential Failed to Pay Death Benefits to Policyholders

Tue, 10 Apr 2012 18:56:27 -0500

Recently, the StarTribune reported on a whistleblower qui tam lawsuit alleging that two life insurance companies knowingly failed to pay benefits on the life insurance policies of almost 600 Minnesota policyholders. The whistleblower lawsuit was recently unsealed by a federal district court and alleges violations of Minnesota's state False Claims Act. It seeks $230 million in damages. The whistleblower is a small, privately-held company in Auburn, Michigan called Total Asset Recovery Services, which has filed several similar whistleblower lawsuits in other states.

Under Minnesota law, life insurance companies must notify the Department of Commerce when benefits from a deceased policyholder's insurance policy go unclaimed for three years. In that instance, insurance companies are required to pass the unclaimed benefits to the State, which locates the beneficiary of the policy and pays any benefits due. The lawsuit alleges that Prudential and MetLife have knowingly failed to comply with these laws with respect to all policyholders who died between September 31, 1986 and September 31, 2009, resulting in about 584 unclaimed policies when the companies "knew or should have known the policy holders were deceased." According to the lawsuit, the average life insurance policy in Minnesota is $130,000.

Although the Minnesota Attorney General's Office decided not to intervene in the whistleblower lawsuit at this time, it may decide to do so in the future. Moreover, the Attorney General's Office, along with the state's Department of Commerce, are jointly investigating how 40 major life insurance companies handle unclaimed death benefits. Specifically, the State is investigating whether insurers are selectively using the Social Security Death Master File database to stop paying on annuity policies when a policyholder dies, but failing to pay benefits on the deceased's life insurance policies or turn over unclaimed benefits to the State.

Other states have launched similar investigations into the practices of insurance companies and the way in which they handle death benefits. Earlier this year, Prudential entered into two multimillion dollar settlements over related issues with California and Florida.

Investor Sues Oracle Over False Claims Act Settlement

Fri, 06 Apr 2012 10:27:09 -0500

Back in October 2011, Oracle Corporation and its subsidiary Oracle America Inc. ("Oracle") agreed to pay $199.5 million to settle a qui tam lawsuit brought by a whistleblower under the False Claims Act. The settlement related to a $1.08 billion contract that Oracle entered into in 1998 to sell software licenses and technical support to government entities through the General Services Administration's (GSA) Multiple Award Schedule program. Under the contract, Oracle was obligated to disclose commercial pricing policies and practices, including discounts offered to commercial customers, and pass those discounts on to the GSA. Paul Frascella, a former employee of Oracle, filed his whistleblower lawsuit in 2007 alleging that Oracle knowingly failed to provide GSA with current, accurate, and complete information about its commercial sales practices, including discounts offered to other customers, and that it made false statements about its sales practices and discounts. Frascella also alleged that Oracle knowingly failed to comply with the price reduction clause of its contract by failing to disclose discounts offered to favored commercial customers, but not to GSA. The $199.5 million settlement was the largest fraud recovery ever obtained by the GSA under the False Claims Act.

Now, according to a recent news article, an Oracle investor, Jordan R. Weinrib, has filed a shareholder derivative lawsuit against Oracle Corporation's directors, including Chief Executive Officer Larry Ellison, over the settlement. Generally, a board of directors has fiduciary duties to the shareholders of the company, including duties of care and loyalty. The complaint filed by Weinrib on March 22, 2012 in the Delaware Chancery Court in Wilmington alleges that Oracle's board of directors breached its fiduciary duties by failing to mitigate damages in Francella's whistleblower lawsuit and forcing the United States government into years of costly litigation, despite knowing that Frascella's allegations were "grounded in fact." The complaint alleges that "[r]ather than attempt to settle all claims at that time by the institution of appropriate corporate therapeutics and the paying of what would have been a small fine, the board insisted on digging in and litigating the matter extensively."

Weinrib blames Oracle's failures on "gross mismanagement" by its directors. Specifically, he alleges that the directors failed to adopt safety measures, such as implementing a tracking system, having internal controls and policies, and requiring mandatory personnel training. According to the complaint, "[t]he misconduct at issue is one of the most serious forms of corporate misconduct as it represents a betrayal of a public trust" and that the "acts in question were no mere technical or bookkeeping error."

Securities Fraud Recoveries Look to Rebound in 2012

Wed, 04 Apr 2012 17:38:35 -0500

Lawsuits brought under the False Claims Act recovered over $3 billion in 2011 for the second consecutive year, a bulk of which were brought by whistleblowers against companies that defrauded federal healthcare programs. Although qui tam lawsuits under the False Claims Act saw another successful year, securities fraud recoveries dropped from 2010.

According to a study released on March 14, 2012 by Stanford Law School and Cornerstone Research, there were 65 court approved securities fraud settlements totaling $1.36 billion in 2011, down from 86 court approved settlements totaling $3.21 billion in 2010. The study reports that the median settlement amount for the 65 court approved settlements was $5.8 million, and the average settlement amount was $21 million. The largest settlement in 2011 was a $208.5 million recovery against Washington Mutual Inc., the largest United States bank or thrift to fail. As for the types of cases settled in 2011, 45 percent of settled cases involved allegations related to violations of generally accepted accounting principles, 40 percent of settled cases were accompanied by derivative actions, and the percentage of settlements involving underwriters matched an all-time high of 26 percent.

Dr. Laura E. Simmons, a business professor at the College of William and Mary and Senior Advisor at Cornerstone Research, believes that large settlements involving American International Group, Inc. and other companies, along with increased Securities and Exchange Commission (SEC) enforcement activity, will lead to a successful year in 2012. Settlement totals for 2012 are expected to include AIG's agreement to pay $725 million to resolve allegations of accounting fraud and stock price manipulations. Other settlements that are expected to top $100 million include Lehman Brothers Holdings Inc; Motorola Solutions Inc.; National City Corp., a bank now owned by PNC Financial Services Group Inc.; and Apollo Group Inc., a for-profit education company.

For-Profit Education Company Settles FCA Lawsuit Alleging Violations of the 90/10 Rule

Fri, 30 Mar 2012 09:53:16 -0500

For-profit colleges have been the target of a number of False Claims Act lawsuits lately, including one against Education Management Corporation. Most recently, the Department of Justice intervened in a qui tam lawsuit under the False Claims Act against American Commercial College Inc. ("ACC"), a chain of for-profit colleges based in Texas. ACC operates five campuses in Texas and one in Louisiana. The lawsuit was filed by two whistleblowers, Shaw Clark and Anthony Delgado, who are former employees of ACC.

The lawsuit, United States of America ex rel. Clark et al. v. American Commercial Colleges, Inc., Case No. 5:10-cv-129-C, was filed in the Northern District of Texas and alleges that the company violated the False Claims Act by falsely certifying compliance with the 90/10 Rule, which is a federal law that prohibits colleges and universities from obtaining more than 90 percent of its yearly tuition from federal student financial aid through the U.S. Department of Education. Tony West, Assistant Attorney General of the Justice Department's Civil Division, commented that "[c]olleges and universities that receive federal funds must be honest with the government and follow the law. . . . We will use the False Claims Act and other tools to protect students and taxpayers from for-profit institutions that fail to measure up to that standard."

The 90/10 Rule also has been the subject of a number of congressional inquiries seeking to strengthen the rule as part of a government crackdown on for-profit educational institutions. A number of senators are calling for changes to the law that would require colleges and universities to count GI Bill benefits, military tuition assistance, and several other sources of federal funds as federal financial student aid in calculating the 90 percent. On February 29, 2012, Senator Thomas R. Carper (D-Del.) held a hearing on a report by the Government Accountability Office, which cited examples of "improper or questionable marketing practices" by for-profit educational institutions. Senator Tom Harkin (D-Iowa), who brought the practices of for-profit educational institutions under the congressional microscope last year, has held a number of hearings on for-profits and expressed a desire to expand the categories of funds included in the 90/10 calculation.

Of course, many for-profit colleges would violate the 90/10 Rule if required to count various types of military aid toward the 90 percent of allowable federal aid. According to the Department of Education, 257 institutions already receive more than 85 percent of their revenue from federal student aid. The 90/10 Rule was originally created by Congress to eliminate for-profit institutions from reaping profits from federal student aid programs - a practice that harms students seeking to obtain an education, the quality of the education they receive, as well as federal taxpayers.

Whistleblowers Remain Invaluable In The Fight Against Fraud

Tue, 13 Mar 2012 12:00:20 -0500

On March 2, 2012, the False Claims Act turns 149 years old. For the past 25 years, qui tam lawsuits brought by whistleblowers under the False Claims Act have been the single most effective tool for combating fraud against the government. The False Claims Act owes much of its success - over $30 billion recovered in judgments and settlements since 1986 - to the courage of whistleblowers who not only report fraud to the government, but also provide invaluable assistance in uncovering evidence and explaining highly complex schemes. This remains as true today as it was during post-Civil War reconstruction when the law was passed.

Recently, the Associated Press reported on the status of a new computer system that was launched last summer and is designed to stop Medicare Fraud. Congress expected the system to allow Medicare to stop losing an estimated $60 billion in fraud each year. But by Christmas, the new computer system had prevented just one suspicious payment, which saved taxpayers $7,591.

Medicare officials defended the results achieved by the computer system, stating that suspending payments is only one way of stopping fraud, and that the system has employed other methods as well, including referring cases to investigators and automatically denying suspect claims. According to Medicare, the computer system was designed to prevent Medicare from paying fraudulent claims and to avoid what is sometimes referred to as "pay and chase" - a system where Medicare pays all claims, however suspicious, and reviews its payments after the fact. According to Hank Walther, the former head of the Department of Justice's health care fraud division, "[t]he whole idea for creating this technology was they were going to be able to end pay-and-chase. . . . But we haven't yet seen evidence of its success."

Senator Tom Carper (D-Del), the chairman of a subcommittee that oversees federal financial management, is disappointed with the results of the computer system, which cost $77 million. Senator Carper has called on Medicare to "explain to us clearly that they are implementing the program, that their goals are well-established, reasonable, achievable, and they're making progress." "We're not sure that they've done those things," he added.

Medicare officials stated that screen technology is now being used to evaluate all Medicare inpatient, outpatient and medical-equipment claims before payment. But payment suspensions did not begin until December 2011 - six months after the system was launched.

The contract for the computer system was awarded to Northrup Grumman and a group of other companies, including IBM. Senator Tom Coburn (R-Okla) has questioned whether Northrup has the experience in financial services to lead the project. According to Senator Coburn, "we ought to be seeing savings of $5 billion a month," but "it will be two to three years before we get an effective predictive system."

Lawmakers and Government Oversight Office Investigate FDA's Email Monitoring Program

Fri, 02 Mar 2012 15:23:12 -0500

The Washington Post recently reported on a lawsuit filed by six whistleblowers, who are former Food and Drug Administration scientists and doctors, accusing FDA of secretly reading their personal email accounts after they warned Congress that the agency was coercing them to approve medical devices that pose an unacceptable risk of harm to patients. The Complaint, which was filed in the United States District Court for the District of Columbia, alleges that FDA violated their constitutional rights, which ultimately led to harassment or dismissal of the six whistleblowers.

The challenged medical devices - most of which have been approved by supervisors despite their objections - include three devices that could miss signs of breast cancer, a devise that exposes patients testing for colon cancer to unnecessarily high levels of radiation (which can cause cancer in otherwise healthy patients), a device that risks falsely diagnosing patients with osteoporosis, and an ultrasound device used with pregnant women that could malfunction and harm the fetus.

FDA surveillance took place over a period of two years as the employees communicated with congressional staffers and their attorneys using personal Gmail accounts on government computers. FDA intercepted emails and draft whistleblower complaints containing information protected by the attorney-client privilege, and took snapshots of their computers.

Internal documents show that FDA reported the whistleblowers' conduct to the Office of the Inspector General in May 2010, stating that the whistleblowers had improperly disclosed confidential information about the devices and requesting that an investigation be opened. OIG declined to do so.

Among the communications intercepted by FDA were emails sent to the Office of Special Counsel, which was established by Congress to provide a secure and confidential avenue for whistleblowers to disclose government fraud, waste, and abuse, including health and safety issues. Recently, OSC broadened the scope of its investigation into the matter to determine whether FDA's surveillance and attempts to initiate criminal investigations against the whistleblowers violated the Whistleblower Protection Act. Under the Whistleblower Protection Act, federal employees are authorized by law to provide any information to OSC, including confidential information, to report government misconduct.

In a statement released by OSC, Special Counsel Carolyn Lerner said that "[m]onitoring employee emails with OSC of Congress could dissuade employees from making important disclosures" and is "unacceptable." She encouraged other agencies to "review their policies to ensure that they are not monitoring or otherwise impeding employee disclosures to OSC or Congress."