Among the many 2009 changes to strengthen the False Claims Act is one whose impact is about to be experienced: greater use of “civil investigative demands” to gather evidence.
Civil investigative demands allow to government to require any person believed to have documents or information relevant to a False Claims Act investigation to do the following:
(A) to produce such documentary material for inspection and copying,
As if the nation’s expenditures to rebuild Iraq were not enough, fraud that steals taxpayer dollars continues to infect the Iraq reconstruction program. This fraud often results in qui tam whistleblower cases under the False Claims Act, which allows those reporting the fraud to receive a a share of the government’s recovery of money.
Today’s New York Times piece by James Glanz reports on the more than 50 new fraud investigations in the past six months alone in the Iraq reconstruction effort.
The Office of the Special Inspector General for Iraq Reconstruction is responsible for these investigations. “Chaos, weak oversight and wide use of cash payments in the reconstruction program in Iraq allowed many more Americans who took bribes or stole money to get off scot-free,” in Mr. Glanz’s words.
Fortunately, 2009 changes to strengthen the False Claims Act, the country’s primary whistleblower law, will allow whistleblowers reporting fraud to do so more effectively so that they may share in the dollars recovered.
Continue reading →
The Justice Department has just announced that, to protect patients from harm in seven Georgia psychiatric hospitals, its Civil Rights Division has filed for relief including immediate appointment of a monitor to protect those patients.
DOJ cited the threat to patients of “imminent and serious threat of harm to their lives, health and safety.”
The seven hospitals include East Central Regional Hospital, Georgia Regional Hospital at Savannah, Georgia Regional Hospital at Atlanta, Southwestern State Hospital, Central State Hospital, West Central Georgia Regional Hospital, and Northwest Georgia Regional Hospital.
The announcement is repinted below:
Continue reading →
How does the IRS treat whistleblowers who receive awards under the False Claims Act’s “qui tam” provisions, which allow private citizens who expose fraud to share in the government’s recovery of money?
The Tax Court this week addressed that question. It held that awards to whistleblowers or “relators” are part of “gross income” and thus are taxable, but that the whistleblower nonetheless may deduct the attorney’s fees paid as a miscellaneous itemized deduction.
Thus, no income taxes were owed on that portion of the whistleblower’s award that was paid as attorney’s fees to the whistleblower’s attorney.
This result not only makes sense, but also is consistent with precedent. Since the whistleblower would have had no recovery but for the attorney’s efforts, it would be unfair to conclude otherwise.
The case is ALBERT D. CAMPBELL, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, decided January 21, 2010. It is reprinted below:
Continue reading →
Attorneys from across the country will gather tomorrow in Atlanta to discuss health care fraud and the 2009 amendments to the False Claims Act, the nation’s primary whistleblower statute.
I am pleased to be on the panel discussing “False Claims Act Developments,” moderated by Jack Boese of Fried Frank. This will be a particularly interesting year for this annual meeting, as Congress enacted major changes to the False Claims Act that took effect on May 20, 2009.
In addition, the “Health Care Fraud Enforcement Act” pending in the Senate would enhance further the government’s tools used to investigate and remedy Medicare and Medicaid fraud. This bill would remove any question that all payments made pursuant to illegal kickbacks are “false” for purposes of the False Claims Act.
Among the significant 2009 changes to the False Claims Act made by the Fraud Enforcement and Recovery Act are the following:
1. The amendments expanded the definition of “claim,” and fraud directed against government contractors, grantees, and other recipients is now plainly covered by the False Claims Act.
2. Funds administered by the United States government (e.g., in Iraq) are now protected.
3. Retaining overpayments of money from the government is now a stated basis of liability, which is a source of concern for health care providers, among others.
4. Liability for “conspiracy” to violate the Act is now broader.
5. Protection of whistleblowers and others against “retaliation” now extends not only to “employees,” but also to “contractors” and “agents”; and persons other than “employers” potentially may be liable for retaliation.
6. In investigations, the government now has authority to use “Civil Investigative Demands” more broadly, and to share information more with state and local authorities and with whistleblowers/relators.
7. A standard definition of what is “material” now applies in False Claims Act cases.
8. The statute of limitations has been clarified for when the government asserts its own claims, after the whistleblower (or “relator”) has filed a qui tam case under the False Claims Act.
The full agenda for tomorrow’s “SOUTHEASTERN HEALTH CARE FRAUD INSTITUTE” is below:
Continue reading →
Since the Madoff and Stanford schemes proved ruinous to so many investors, many have asked why the SEC has no meaningful “whistleblower” program to expose wrongdoing, a topic we have written about previously.
Perhaps Harry Markopolis’ voice is finally being heard, albeit faintly. Last week, the House Financial Services Committee approved legislation that would expand both whistleblower rewards and whistleblower protections, among other things.
Still, past experience with the False Claims Act and the IRS Whistleblower statute shows that the proposed rewards need to be beefed up to be effective.
The “Investor Protection Act of 2009” (excerpted below) also would increase the SEC’s budget and make other changes designed to strengthen enforcement.
The new rewards to whistleblowers would be up to 30% of monetary sanctions of more than $1 million:
“In any judicial or administrative action brought by the Commission under the securities laws that results in monetary sanctions exceeding $1,000,000, the Commission, under regulations prescribed by the Commission and subject to subsection (b), may pay an award or awards not exceeding an amount equal to 30 percent, in total, of the monetary sanctions imposed in the action or related actions to one or more whistleblowers who voluntarily provided original information to the Commission that led to the successful enforcement of the action.”
The proposed new whistleblower rewards are reminiscent of those under the new IRS Whistleblower Program, but need at least two corrections to be effective.
First, the current SEC bill creates no enforceable “right” to a reward–a defect that made the old IRS Whistleblower statute ineffective before it was amended in December 2006.
Second, there should be a minimum percentage of perhaps 15% for the SEC rewards; it should not be left at 0-30%, as the bill now reads. Who would risk a 1% (or even lower) reward? The False Claims Act only became effective after 1986 amendments increased rewards to at least 15% in most cases. The new IRS Whistleblower law is attracting whistleblowers left and right because it provides for a minimum of 15% in most instances.
The proposed SEC law has one advantage over the IRS version: The IRS law unfortunately omits protection of whistleblowers from retaliation, but the proposed SEC whistleblower provisions would provide a remedy similar to that furnished whistleblowers under the False Claims Act. Here is what the proposed bill states (in part):
“An employee, contractor, or agent prevailing in any action brought under subparagraph (B) shall be entitled to all relief necessary to make that employee, contractor, or agent whole, including reinstatement with the same seniority status that the employee, contractor, or agent would have had, but for the discrimination, 2 times the amount of back pay, with interest, and compensation for any special damages sustained as a result of the discrimination, including litigation costs, expert witness fees, and reasonable attorneys’ fees.”
The bill’s proposed SEC whistleblower language is below; the entire bill may be found here:
Continue reading →
The battle against those who steal taxpayer dollars through Medicare fraud and other health care fraud took a step forward this week. The Senate is now considering the “Health Care Fraud Enforcement Act,” which will enhance the government’s tools used to investigate and remedy Medicare and Medicaid fraud.
After a Senate Judiciary Committee hearing Wednesday on “Effective Strategies for Preventing Health Care Fraud,” Senators Leahy, Kaufman, Specter, Kohl, Schumer, and Klobuchar sponsored the new anti-fraud measure.
Excerpts of the Senate announcement follow:
The bill makes straightforward but critical improvements to the federal sentencing guidelines, to health care fraud statutes, and to forfeiture, money laundering, and obstruction statutes, all of which would strengthen prosecutors’ ability to combat this particularly destructive form of fraud. These improvements include:
o Sentencing increases: The bill directs the Sentencing Commission to increase the guidelines range for health care fraud offenses and clarifies that the full potential scope of the fraud should be considered at sentencing.
o Redefining “health care fraud offense”: The bill includes all health care crimes within the definition of “health care fraud offense,” regardless of where they are codified. (ERISA, drug marketing, and kickback crimes are currently not included) This change will make available to law enforcement the full range of antifraud tools, including criminal forfeiture and obstruction penalties, to combat these offenses.
o Improving whistleblower claims: Kickbacks lead to unnecessary and risky medical care and pervert the doctor-patient relationship. This bill clarifies that all payments made pursuant to illegal kickbacks are false for purposes of the False Claims Act.
o Creating a common-sense mental state requirement for health care fraud offenses: Some courts have held that defendants must be aware that their conduct violates a specific provision of criminal law in order to be held accountable. This bill restores the original intent of Congress that a person is guilty of a health care offense if he knowingly does what the law forbids.
o Increasing funding: Money spent on health care fraud prevention and enforcement is returned manifold through costs savings and civil and criminal recoveries. This bill authorizes a modest, yet significant, increase in federal antifraud spending of $20,000,000 per year through 2016.
The new bill would add to legislation earlier this year to strengthen law enforcement statutes aimed at fraud, the Fraud Enforcement and Recovery Act.
Of particular importance to qui tam whistleblower cases under the False Claims Act, the nation’s major whistleblower law, the new bill removes any ambiguity that “kickbacks” violate the False Claims Act. The official summary discusses kickbacks in section 2(c):
Section 2(c). Kickbacks
All too often, health care providers secure business by paying illegal kickbacks, which needlessly increase health care risks and costs. When a doctor’s independent judgment is compromised by a kickback, the patient faces the risk that the doctor is making decisions that are not in the patient’s best interest. In addition, excessive payments to doctors increase health care costs, may result in unfair competition, and may compromise medical research independence and the standards of scientific integrity.
The Department of Justice has had success both prosecuting illegal kickbacks and pursuing False Claims Act (FCA) matters predicated on underlying violations of the Anti-Kickback Statute (AKS). Nevertheless, defendants in such FCA cases continue to mount legal challenges. A court recently held that, even though a device company may have paid a kickback to a doctor to use a particular medical device, the bill for the procedure to implant the device was not false because the claim was submitted by the innocent hospital, and not by the doctor. United States ex rel. Thomas v. Bailey, 2008 WL 4853630 (E.D. Ark.) (Nov. 6, 2008). In other words, a claim that results from a kickback and that is false when submitted by a wrongdoer is laundered into a “clean” claim when an innocent third party finally submits the claim to the government for payment. This has the effect of insulating both the payor and the recipient of the kickback from FCA liability. This obstacle to a successful FCA action particularly limits Department’s ability to recover from pharmaceutical and device manufacturers, because in such instances the claims arising from the illegal kickbacks typically are not submitted by the physicians that received the kickbacks, but by pharmacies and hospitals that had no knowledge of the underlying unlawful conduct.
This section remedies the problem by amending the AKS to ensure that all claims resulting from illegal kickbacks are false, even when the claims are not submitted directly by the wrongdoers themselves. (Notably, in such circumstances, neither AKS nor FCA liability will lie against an innocent third party that submitted the claim but lacked the requisite intent required under those statutes.)
The full text of the bill is below:
Continue reading →
With the nation’s health care costs growing, a DOJ and HHS initiative to combat health care fraud continues to show progress.
Building on past enforcement efforts, in May 2009 the government announced its Health Care Fraud Prevention and Enforcement Action Team (HEAT), as part of what is now a Cabinet-level battle against Medicare fraud. To date in FY 2009, the Department of Justice has recovered close to one billion dollars in health care fraud cases, and has obtained 300 convictions.
Last week, the government announced that its Medicare Fraud Strike Force has charged twenty California defendants with $26 million in Medicare fraud from the sale of durable medical equipment (DME). That same week, the government charged six Houston area residents with participating in a scheme to submit claims to Medicare for medically unnecessary DME.
Defrauding the government of taxpayer dollars has gotten tougher over the past five months.
Important changes to the nation’s primary anti-fraud statute, the False Claims Act, took effect on May 20, 2009, when the Fraud Enforcement and Recovery Act of 2009 became law.
Among the most significant changes, Congress clarified and corrected the False Claims Act by legislatively overruling certain court decisions that sought to limit the scope of the Act, including Allison Engine Co. v. United States ex rel. Sanders, 128 S. Ct. 2123 (2008); United States ex rel. Totten v. Bombardier Corp., 380 F.3d 488 (D.C. Cir. 2004), cert. denied, 544 U.S. 1032 (2005); and United States ex rel. DRC, Inc. v. Custer Battles, LLC, 376 F. Supp. 2d 617 (E.D. Va. 2005), rev’d, 562 F.3d 295 (4th Cir. 2009).
These important 2009 changes to the False Claims Act include the following:
1. The amendments expand the definition of “claim,” and fraud directed against government contractors, grantees and other recipients is now plainly covered by the law.
2. Funds administered by the United States government (such as in Iraq) are now protected.
3. Retaining overpayments of money from the government is now an explicit basis of liability, which will be a source of concern for health care providers, among others.
4. Liability for “conspiracy” to violate the Act is broader than before.
5. Protection of whistleblowers and others against “retaliation” now extends not only to “employees,” but also to “contractors” and “agents”; and persons other than “employers” potentially may be liable for retaliation.
6. In investigating, the government now has authority to use “Civil Investigative Demands” more broadly, and to share information more with state and local authorities and with whistleblowers/relators.
7. A standard definition of what is “material” now applies in False Claims Act cases.
8. The statute of limitations has been clarified to allow the government to assert its own claims, after the whistleblower (or “relator”) has filed a qui tam case under the False Claims Act.
The amended False Claims Act is reprinted below, in its entirety:
Continue reading →
At the “Advanced Health Law” seminar on October 9, attorneys prosecuting and defending cases of alleged health care fraud will discuss the important new amendments to the False Claims Act. I am honored to be the panelist who will discuss these important new provisions from the perspective of representing whistleblowers (known as “relators”) who bring qui tam whistleblower cases under the False Claims Act.
These significant changes to the False Claims Act took effect on May 20, 2009, when the Fraud Enforcement and Recovery Act of 2009 became law. Among the most important changes, Congress corrected and clarified the False Claims Act by legislatively overruling certain court decisions that sought to limit the scope of the Act, including Allison Engine Co. v. United States ex rel. Sanders, 128 S. Ct. 2123 (2008); United States ex rel. Totten v. Bombardier Corp., 380 F.3d 488 (D.C. Cir. 2004), cert. denied, 544 U.S. 1032 (2005); and United States ex rel. DRC, Inc. v. Custer Battles, LLC, 376 F. Supp. 2d 617 (E.D. Va. 2005), rev’d, 562 F.3d 295 (4th Cir. 2009).
The False Claims Act, as amended, now has these provisions:
Whistleblower Lawyer Blog