Articles Posted in The Whistleblower Experience

Lawsuits 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.

In its opinion handed down today in United States ex rel. Goldberg v. Rush University Medical Center, the Seventh Circuit reaffirmed a broad understanding of the public disclosure bar in the False Claims Act (“FCA”).

Prior to 2009, the statutory language barred suits “based upon” allegations which had previously been publicly disclosed by government action or the news media. The “based upon” language has been the source of much controversy as courts have grappled with its meaning, but all of the circuits (with the exception of the Fourth Circuit) have ultimately interpreted it to mean “substantially similar.” In 2009, Congress amended the Act and replaced the “based upon” language with “substantially similar.”

The Seventh Circuit further elaborated the interpretation of “substantially similar” in its recent ruling of May 2012, finding that an FCA suit would not be barred unless the publicly-disclosed claims alleged both a particular act of fraud and a particular defendant. Such an interpretation, the court noted, is consistent with the Act’s broader purpose of ensuring that individual whistleblowers come forward with helpful information that may assist in recovering damages from contractors who have defrauded the federal government.

The United States Court of Appeals for the District of Columbia circuit released its opinion on Tuesday in the case of United States ex rel. Davis v. District of Columbia, No.  11-7039 (D.C. Cir. May, 15 2012), rejecting the Circuit’s previous restrictive reading of the “original source” provision of the False Claims Act and subsequently embracing an understanding of the provision consistent with the Supreme Court’s decision in Rockwell International v.United States, 549 U.S. 457 (2007) and amendments to the provision enacted by Congress in 2010 .

Prior to today’s opinion, the circuit court had held that a qui tam relator, commonly referred to as a whistleblower, must make a disclosure to the government concerning a False Claims Act allegation before the existence of any public disclosure regarding the same allegation.  Today’s decision recognizes that such a view of the “original source” provision of the False Claims Act “bars productive suits” and is ultimately inconsistent with the Supreme Court’s recent decision in Rockwell International.

Moreover, the court noted that recent congressional amendments to the False Claims Act definitively answer any questions left open by the prior law, recognizing that the False Claims Act now considers allowable original sources of information to include whistleblower with original knowledge of fraud that materially adds to an investigation, even where an allegation has already been publicly disclosed.

The American Hopsital Association (AHA) recently issued critical comments in response to a proposed rule concerning the reporting and returning of overpayments paid to health care providers and suppliers by a federal health care program such as Medicare and Medicaid.  The proposed rule, issued on February 16, 2012 and listed in the federal registrar as “CMS-6037-P,” would implement section II28J(d) of the Affordable Care Act.  Under the plain text of that statute, a supplier or provider of services must report and return any overpayment within either 60 days of the overpayment’s identification or the date of a corresponding cost report, if applicable.  The proposed rule provides procedures and guidance for enforcing the Affordable Care Act’s statutory requirements concerning overpayments.

Nearly every provision of the proposed rule was addressed by the AHA’s letter to CMS, though common to all criticisms of the rule appears to be AHA’s concern that the proposed rule would impose excessive burdens on hospitals to investigate potential overpayments, adminstrative uncertainty, and unreasonable liability for overpayments which may have occured within the past 10 years.

Indeed, the principle concern expressed by the AHA related to the perceived burden the proposed rule would have on hospitals to fully investigate and identify past overpayments in order to avoid liability under the new law.  The AHA specifically urged CMS to evaluate the meaning of the word “identify” as it relates to the identification of overpayments required to be reported and returned to the government.  The proposed rule construed the word to impose responsibility for reporting and returning an overpayment “if the person has actual knowledge of the existence of the overpayment or acts in reckless disregard or deliberate ignorance of the overpayment.”  The AHA is concerned that this understanding of the statute would impose liability upon a hospital “even if no individual was aware of or recognized that it had received an overpayment.”