Articles Posted in The Whistleblower Experience

MedStar Ambulance Inc., a large Massachusetts ambulance company, will pay $12,700,000 dollars to settle False Claims Act (“FCA”) allegations brought by a corporate “whistleblower.”

The False Claims Act allows individuals with information about fraud on the government to bring suits on behalf of the United States to recover ill-gotten funds from contractors. If an individual’s suit proves successful, the “whistleblower” is generally entitled to 15-30% of the recovered funds. Congress adopted the law in the 19th century to expose fraud among contractors.

The case leading to MedStar’s settlement, filed by Dale Meehan, a former MedStar “Patient Account Representative” working in Worcester, Massachusetts, alleged various fraudulent schemes the company employed to bilk funds from federal healthcare programs.

This month, the Department of Justice (“DOJ”) announced that Shire Pharmaceuticals will pay $350 million to settle False Claims Act (“FCA”) allegations that Shire and the company it acquired in 2011, Advanced BioHealing (“ABH”), used kickbacks and other prohibited sales methods to compel hospitals, Doctors, and their firms to overuse its product “Dermagraft.”

Shire is a pharmaceutical company headquartered in Ireland. Its United States headquarters are located in Lexington, Massachusetts.

The allegations resolved by the settlement were brought in six lawsuits filed under the qui tam whistleblower provisions of the FCA. Those provisions permit private parties to sue on behalf of U.S. and state governments for false claims.

A long awaited Supreme Court decision that held major implications for False Claims Act litigants was handed

New-York-City2down this week. On Tuesday, the United States Supreme Court upheld a jury verdict that found State Farm Insurance Company (“State Farm”) defrauded a federal flood insurance program to avoid paying a homeowner’s insurance claim in the wake of Hurricane Katrina.

The False Claims Act (“FCA”) is a law Congress adopted to expose rampant fraud among contractors supplying the Union Army during the American Civil War. Frauds included businesses that sold guns that did not shoot and boots that fell apart after a day’s use. The statute encourages private parties, (“whistleblowers”) or (“relators”), with knowledge of fraud to file suit and collect a share of the government’s recovery.

Shipping-ContainersTwo whistleblowers brought fraud allegations against shippers of military freight and helped the U.S. Government recover $13 million in a False Claims Act settlement announced this month. The case involved a nationwide contract described by Transport Topics Newspaper as “the largest logistics outsourcing in history.”

Richard Ricks, 58, and Marcelo Cuellar, 30, filed a complaint under the federal False Claims Act, alleging that contractors under the Defense Transportation Coordination Initiative (“DTCI”) knowingly inflated charges to the Government for shipping military freight throughout the United States.

The Defense Transportation Coordination Initiative was a massive initiative by the U.S. Department of Defense (“DoD”) to manage distribution of military freight in the continental United States. The purpose of the DTCI was to “increase the operational effectiveness of the U.S. Military and at the same time, obtain efficiencies. The premise is that DoD will increase operational effectiveness… [and] also obtain efficiencies through best business practices such as increased consolidations and mode conversions.” In effect, the DTCI was an attempt to outsource and reduce transportation costs—a fact lost on the fraudulent contractors. In 2015, the program was abandoned because of rampant fraud.

Stethoscope1-150x150Travis Thams, the whistleblower who filed a False Claims Act (“FCA”) lawsuit on behalf of the United States and 28 states, stands to receive a substantial portion of the $8 million settlement reached with his employer, Cardiovascular Systems, Inc. (“CSI”).

Thams was recruited to CSI to act as a District Sales Manager. He was responsible for selling the entire portfolio of CSI products.

CSI manufactures devices to treat peripheral artery disease (“PAD”). The devices in question are electrically driven and use a diamond-coated “crown” to sand away hard plaque within the arteries. As the crown “spins” at between 60,000 to 120,000 revolutions per minute within the artery, the plaque is effectively “sanded” away, and it restores blood flow.

Ricky Howard, a former employee of a California construction company that did work on domestic military bases, will receive $1.48 million dollars for his information regarding fraudulent billing practices. Howard has worked in the masonry trade his entire career, and was employed by Harper Construction Company (“Harper”) when he discovered the company’s frauds on the government.

Earlier this month, the U.S. Attorney for the District of Southern California announced that Harper has paid $5.4 million dollars to resolve allegations that it “up-charged” the U.S. government for its work on Camp Pendleton and Camp Lejeune and fraudulently created “sham” companies to fulfill government contracting requirements.

Harper Construction is ranked among the Top 400 construction companies, the Top 100 Design Build Firms, and the Top 100 Green contractors in the United States. It is the second largest privately-held company in San Diego, California. It reported revenues in 2010 of approximately $360 million.

WhistleLast week, the Court of Appeals for the Fourth Circuit revived a False Claims Act retaliation case filed by two nurses allegedly terminated by a U.S. Department of State contractor. The decision reversed a district court’s 2013 dismissal of the complaint brought by husband and wife Ronald and Ramona Young alleging that CHS Middle East LLC (“CHS”) of firing them after they complained of contractual violations related to the intensity of treatment, surgical facilities, and staff member qualifications at a military base in Iraq. More specifically, the Court of Appeals found that the quality-of-care concerns expressed by the nurses are protected activities under a recent ruling that expanded liability under the federal statute. It reasoned that if implicit false statements amount to fraud under the False Claims Act, employee criticism of such false statements may constitute protected whistleblower activity. The Act expressly prohibits retaliation because of lawful acts done in furtherance of an action or to otherwise stop one or more violations of the Act. Continue reading ›

WhistleTwo former employees of Dallas-based South Hampton Community Hospital were allegedly terminated for reporting violations of the False Claims Act to the U.S. Department of Health and Human Services’ Office of the Inspector General. The two were allegedly threatened, harassed, discharged, and otherwise discriminated against for reporting that the hospital changed diagnoses to bill government health care programs at improperly inflated rates and texted patients’ private medical information so that doctors could bill for visits that didn’t actually occur. In 2012, the hospital received an “F” for safety from the Leapfrog Group, a Washington-based nonprofit ratings service set up by major employers across the country to improve patient safety and value. The 111-bed acute care hospital was subsequently acquired by University General Health System and in early 2013 was re-branded as University General Hospital-Dallas. Continue reading ›

BU009443Contractual agreements with the U.S. military for goods provided in commissaries and exchanges can provide funding designed to ultimately benefit military families. The Morale, Welfare and Recreation (“MWR”) Fund, for example, is a comprehensive network of services that provides support, family child care, and discounted recreation to military personnel and their families. MWR derives part of its funding from tobacco profits from cigarettes sold at military exchanges. Any inflation of those prices would, in turn, have the effect of diminishing funding for the programs and services provided by the MWR.

In a complaint filed in 2008 on behalf of the government by whistleblower Anthony Oliver, CEO of tobacco company Medallion Brands International, it was alleged that Philip Morris USA violated the False Claims Act by selling its cigarettes to the military at prices significantly higher than what others were charged. Oliver specifically alleged that, despite the inclusion of a “most favored customer” clause guaranteeing the best price in its agreements with U.S. Army, U.S. Navy, and U.S. Air Force exchanges, Philip Morris actually charged more than what was paid by affiliates purchasing the same products or foreign purchasers of the same products. Philip Morris did not deny the charging of higher prices but defended on the basis of the cost of maintaining the Surgeon General’s Warning on the packaging.

The case was recently dismissed in part because the federal trial court found that Oliver was not the original source of the information as required by the False Claims Act. Because of the dismissal, no ruling was made regarding the alleged violations of the Act. Government contracts between private corporations and the federal government account for hundreds of billions of dollars in spending each year and the False Claims Act provides an incentive to private citizens with inside information to alert the government of fraud in such contracts. A successful suit can result in an award of 15% to 30% of any final judgment or settlement to the whistleblower. In addition, recent amendments to the Act provide increased protection against employer retaliation for those who take steps to report or stop fraud.

Department of JusticeLawsuits brought in qui tam actions under the federal False Claims Act (“FCA”), as well as other government investigations, will lead to an estimated $8 billion this year alone in recoveries this year to resolve allegations of fraud against the government. The staggering amount, more than double the total from last year, is indicative of both more vigorous government pursuit of fraud claims and important changes in the law that have increased incentives for whistleblowers to come forward with information. Under the FCA, the government may collect penalties of between $5,500 and $11,000 per violation, as well as treble damages. Since whistleblowers (also called relators) under the FCA receive a percentage of any final judgment or settlement awarded to the government, the incentives to blow the whistle can be compelling. As the efficacy of the FCA and other federal whistleblower programs (including programs administered by the SEC, the IRS, and OSHA) increases, some observers have begun to raise the question of whether or not settlements with large corporate defendants create an adequate general deterrent, and whether individuals who are complicit in fraudulent schemes against the government ought not be prosecuted. Many FCA settlements entail guilty pleas by corporations, but rarely are individuals charged with crimes.

President Obama, some members of Congress, and watchdog groups have advocated holding more individuals accountable, particularly in the arena of securities fraud. Numerous high-profile cases, many of which resulted from FCA qui tam lawsuits, have settled recently, including a historic $3 billion settlement with GlaxoSmithKline which included civil and criminal penalties in connection with the drug manufacturer’s alleged off-label drug promotion and pricing fraud. Despite the need for individual accountability, private whistleblower suits under the FCA may represent a more effective means of redressing the pervasive problems of fraud and abuse against the government. Last week, for example, a Citigroup manager was acquitted of all charges in a high-profile securities fraud case tried in New York City. Since it is often much more difficult to prove that an individual acted with an intent to defraud and in fact did participate in a corporate fraud scheme, civil suits provide a more feasible way of protecting taxpayer dollars and deterring future wrongful conduct. Moreover, investigations of individuals’ conduct may ultimately lead to criminal charges irrespective of any settlement in a civil lawsuit. The S.E.C. says it has charged 55 chief executives and other senior officers with violating securities law in relation to the financial crisis. The commission has collected $2.2 billion in penalties, disgorgement, and other monetary damages from cases related to the crisis. Proving individual guilt beyond a reasonable doubt in a criminal trial, however, remains difficult and highly costly.

Recent changes to the FCA to increase whistleblower incentives, particularly in the wake of passage of the Fraud Enforcement and Recovery Act (“FERA”) in 2009, as well as the Dodd-Frank Bill and the Patient Protection and Affordable Care Act (“PPACA”) in 2010, have contributed to a rising tide of qui tam lawsuits under the FCA. The FCA allows relators to sue on behalf of the government for fraud. The law imposes liability for the submission of a false claim in connection with payment from the government or in order to reduce or evade a liability owed to the government. After a relator files suit, the government reviews the allegations and may elect to intervene in the litigation. Even if the government does not intervene, relators may proceed with their claims. Relators stand to recover between 15% and 30% of any final judgment or settlement.

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