Whistleblower Blog

The Most Significant Recent Qui Tam Whistleblower Cases Under the False Claims Act

January 18, 2007
Michael Sullivan

This is the final section of my article. It discusses the most significant recent qui tam cases under the False Claims Act (as of December 2006).

B. Recent Significant Recoveries Under the False Claims Act:

1. Health Care Industry

a. Tenet Healthcare Corporation: $900 million

In June 2006, Justice Department announced that Tenet Healthcare Corporation, operator of the Nation’s second largest hospital chain, had agreed to pay the United States more than $900 million for alleged unlawful billing practices.

According to the government, the settlement amount, which was based on the company’s “ability to pay” (a phrase that suggests the government’s calculation of damages was higher), included more than $788 million to resolve claims arising from Tenet’s receipt of excessive “outlier” payments (payments that are intended to be limited to situations involving extraordinarily costly episodes of care, resulting from the hospitals’ inflating their charges substantially in excess of any increase in the costs associated with patient care and billing for services and supplies not provided to patients); more than $47 million to resolve claims that Tenet paid kickbacks to physicians to have Medicare patients referred to its facilities; and that Tenet billed Medicare for services that were ordered or referred by physicians with whom Tenet had an improper financial relationship; and more than $46 million to resolve claims that Tenet engaged in “upcoding.” The Justice Department acknowledged that “several” of the issues arose from lawsuits filed by whistleblowers under the qui tam provisions of the Act.

b. Serona, S.A: $704 million

The Swiss corporation, Serona, S.A., with its U.S. subsidiaries and related entities, agreed to pay $704 million to resolve criminal and civil allegations in October 2005. According to the Justice Department’s announcement, these allegations were in connection with illegal schemes to promote, market, and sell Serostim, an AIDS drug. The civil portion of the settlement was $567 million, and Serona also agreed to pay a $136.9 million criminal fine. This was the third largest health care fraud recovery by the government at the time.

According to the government, Serona knowingly submitted false and fraudulent claims for Serostim that were not eligible for reimbursement because they were for unnecessary and/or for off-label use of Serostim, and because the claims were for prescriptions induced by kickbacks. The investigation began in 2000 because a former Serona Lab’s employee filed a qui tam action, which was followed by other whistleblower suits in other states. This Serona settlement was reportedly the largest civil drug settlement to date.

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The Growing Importance of the Qui Tam Whistleblower Cases Under the False Claims Act

January 18, 2007
Michael Sullivan

This is part 4 of my article on the False Claims Act. This part discusses the huge increase in federal dollars recovered in the past few years:

IV. Recent Recoveries and Other Developments In Qui Tam Litigation

A. An Explosion of Federal Dollars Recovered Since 1986, Under the False Claims Act

Over the past 20 years since the modern False Claims Act was established through the 1986 Amendments, the federal government’s recoveries of dollars have grown astronomically. The Department of Justice statistics reprinted in Appendix 2 tell the story:

In 1987, the government’s recoveries in qui tam cases totaled zero, presumably because the 1986 Amendments had just taken effect; and total recoveries under the False Claims Act were just $86 million. The following year, qui tam and other False Claims Act settlements and judgments began a steady climb upward, exceeding $200 million by 1989, and $300 million by 1991. By 1994, the government’s recoveries broke the $1 billion mark for the first time, with $380 million of that amount attributable to qui tam case recoveries alone.51

In 2000, the government recovered more than $1.5 billion, of which $1.2 billion was derived from qui tam actions. In 2001, the government recovered more than $1.7 billion, with almost $1.2 billion of that amount from qui tam cases. With the exception of 2004, in each year since 2000 the government has recovered more than a billion dollars per year under the False Claims Act, and qui tam actions were responsible for the lion’s share of those recoveries. For example, in 2003, government recoveries exceeded $2.2 billion, of which $1.4 billion derived from qui tam cases. Similarly, in 2005, of the government’s total recovery of $1.4 billion, $1.1 billion of that amount derived from qui tam cases.

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How the Modern False Claims Act Works in Qui Tam Whistleblower Cases

January 18, 2007
Michael Sullivan

This is part 3 of my article on how the False Claims Act works:

III. Brief Overview of How the Modern False Claims Act Works

A. Conduct Prohibited

The federal False Claims Act imposes civil liability under several different theories:

First, the Act makes liable any person who knowingly presents, or causes to be presented, a “false or fraudulent claim for payment or approval” to the federal government.27 “Claim” is broadly defined to include not only submissions made directly to the federal government, but also “any request or demand . . . for money or property” made to a “contractor, grantee, or other recipient” if the federal government provides any portion of the money or property in question.28

Second, the Act creates liability for using a “false record or statement” to obtain payment of a false claim. It imposes liability on any person who “knowingly makes, uses, or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the government.”29

Third, the False Claims Act imposes liability under a “conspiracy” provision. Any person who “conspires to defraud the Government by getting a false or fraudulent claim allowed or paid” is also liable under the Act.30
Fourth, since the government also can be defrauded when a private entity underpays or avoids paying an obligation to the government, the modern Act contains what is known as a “reverse false claim” provision. It creates liability for 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 For example, a company that is obligated to pay royalties to the government under an oil lease can be held liable if it uses false records or statements to pay less than what it owes.

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History of the False Claims Act

January 18, 2007
Michael Sullivan

This is the second part of my article explaining the False Claims Act–it addresses the history of the Act:

II. Background of the False Claims Act
While the False Claims Act may be the best known qui tam statute, it is far from being the first. Qui tam actions date back to English law in the 13th and 14th Centuries. This tradition took root in the American colonies and, by 1789, states and the new federal government had authorized qui tam actions in various contexts.7
According to one writer, “[i]n the early years of the Nation, the qui tam mechanism served a need at a time when federal and state governments were fairly small and unable to devote significant resources to law enforcement. As the role of the Government expanded, the utility of private assistance in law enforcement did not diminish. If anything, changes in the role and size of Government created a greater role for this method of law enforcement.” 8

A. Birth of the False Claims Act
The Civil War prompted Congress to enact the original False Claims Act in 1863. As government spending on war materials increased, dishonest government contractors took advantage of opportunities to defraud the United States government. “Through haste, carelessness, or criminal collusion, the state and federal officers accepted almost every offer and paid almost any price for the commodities, regardless of character, quality, or quantity.”9 The original legislative proposal would have made contractors subject to martial law. A substitute bill provided for both civil and criminal penalties, and it authorized private individuals to sue on behalf of the United States. One senator explained how the qui tam provision of the Act was intended to work:

The effect of the [qui tam provision] is simply to hold out to a confederate a strong temptation to betray his co-conspirator, and bring him to justice. The bill offers, in short, a reward to the informer who comes into court and betrays his co-conspirator, if he be such; but it is not confined that class. . . . In short, sir, I have based the [qui tam provision] upon the old fashioned idea of holding out a temptation and setting a rogue to catch a rogue, which is the safest and most expeditious way I have ever discovered of bringing rogues to justice.10
The original Act provided for civil penalties of double the amount of damages sustained by the United States as a result of the false claim, plus a $2,000 forfeiture for each claim submitted.11 In the original Act, if a private citizen used the qui tam provision to file suit, the government had no right to intervene or control the litigation. The “relator” who was successful was entitled to receive one-half the amount of the final judgment in forfeiture and damages, with the United States receiving the other half.12

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Introduction to the False Claims Act and Qui Tam Whistleblower Cases

January 18, 2007
Michael Sullivan

I wrote this article for a seminar to explain the False Claims Act to those who may not know about it. I hope it may be useful to those who are interested in the Act. I have divided it into several sections–this is the first section, summarizing how the False Claims Act came to be in the time of Abraham Lincoln, and how it has evolved since then:

I. Introduction

Fraud is perhaps so pervasive and, therefore, costly to the Government due to a lack of deterrence. GAO concluded in its 1981 study that most fraud goes undetected due to the failure of Governmental agencies to effectively ensure accountability on the part of program recipients and Government contractors. The study states:

For those who are caught committing fraud, the chances of being prosecuted and eventually going to jail are slim . . . The sad truth is that crime against the Government often does pay.1

Fraud–and allegations of fraud–plague government spending at every level. Today, as the federal and state governments struggle to fund the billions of dollars spent annually on health care through Medicare and Medicaid; the Iraq war and reconstruction effort; other Department of Defense procurement; Hurricane Katrina and other disaster relief; and government grants and programs of every description, there is no shortage of opportunities for fraud against the public fisc.

The federal False Claims Act, 31 U.S.C. §§ 3729 – 3733, has been the federal government’s “primary” weapon to recover losses from those who defraud it.2 The Act not only authorizes the government to pursue actions for treble damages and penalties, but also empowers and provides incentives to private citizens to file suit on the government’s behalf as “qui tam relators.”3 Over the past 20 years, recoveries for the federal government have grown dramatically since Congress amended the Act in 1986 to encourage greater use of the qui tam provisions, as part of a “coordinated effort of both the [g]overnment and the citizenry [to] decrease this wave of defrauding public funds.”4

The False Claims Act has unique procedural requirements that create many pitfalls for a lawyer prosecuting or defending cases under the Act. In addition, the law varies among the different federal circuits in ways that can determine the outcome of a False Claims Act case, depending on where it is filed.

——————————————————————————–

1 Legislative History to P.L. 99-562, False Claims Amendments Act of 1986, Senate Report No. 99-345 S. Rep. 99-345, 3, 1986 U.S.C.C.A.N. 5266, 5268 (hereinafter “Legislative History”) (quoting 1981 GAO Report to Congress, “Fraud in Government Programs: How Extensive is it? How Can it be Controlled?”).

2 Legislative History, at 2, 1986 U.S.C.C.A.N. at 5266.

3 The term “qui tam” is derived from the Latin phrase, “qui tam pro domino rege quam pro se ipso in hac parte sequitur,” which means “who pursues this action on our Lord the King’s behalf as well as his own.” Vermont Agency of Natural Resources v. United States ex rel. Stevens, 529 U.S. 765, 769 N.1 (2000).

4 Senate Report No. 99-345 S. Rep. 99-345, *2, 1986 U.S.C.C.A.N. 5266, **5267. Appendix 2 shows the growth in revenues, which is discussed in section IV infra.

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IRS Whistleblower Program: Updated Summary for Lawyers with Potential Tax Whistleblower Claims

April 29, 2008
Michael Sullivan

(Updated) For a national conference of employment lawyers, I was asked to participate in a panel discussion of “Strategic Thinking in Whistleblower Cases” and to explain the new IRS Whistleblower Program.

Because our whistleblower lawyer blog (https://www.whistleblowerlawyerblog.com/irs_rewards_program_tax/) has followed closely the development of the new IRS Whistleblower Program since Congress authorized it in December 2006, I will summarize here some of the key points about the IRS Whistleblower Program, which is still taking shape. By experimenting and using this “blog” as an old-fashioned seminar paper–with the interactive features of the web–the National Employment Lawyers Association lawyers (and others) may be able to “link to” other pertinent topics on the web, such as the various IRS materials discussed here.

Overview

Until December 2006, the Internal Revenue Service had no effective program to encourage whistleblowers to report tax fraud and tax violations. Rewards to “IRS Whistleblowers” were rare, slow, discretionary, and small–and typically could not exceed 15 percent of the amount recovered by the IRS. As a result, the “old” program was ineffective–even though the IRS historically has made good use of information from informants.

The new IRS Whistleblower Program provides the first meaningful rewards to whistleblowers who report substantial tax violations when at least $2 million is owed to the IRS. The amended IRS Whistleblower statute, 26 U.S.C. § 7623, doubles the rewards available to 15-30% of the government’s recovery, and for the first time creates an enforceable right for the whistleblower to receive a reward. Not only taxes, but also interest and penalties, count in calculating the whistleblower’s reward.

Many challenges nonetheless remain in representing IRS Whistleblowers. Perhaps the greatest is convincing an overburdened IRS that your client’s case is worth the investment of its limited resources. The IRS already has many other cases awaiting investigation, and would-be whistleblowers continually add to that “pile” by submitting hundreds of other potential cases.

Background–Why Now?

The new IRS Whistleblower rewards were inspired by another whistleblower statute, the federal False Claims Act. The successes of the False Claims Act over the past two decades convinced Senator Chuck Grassley (R-Iowa) and others in Congress that meaningful whistleblower rewards are an effective tool for the government to recover public dollars obtained by fraud. Since the False Claims Act was amended in 1986 to increase the size of rewards and otherwise encourage “qui tam” lawsuits that expose fraud against the government, the federal government’s fraud recoveries have grown dramatically–from less than $100 million in 1987, to more than $3 billion in 2006.

Tax violations, however, fall outside the False Claims Act, which expressly “does not apply to claims, records, or statements made under the Internal Revenue Code of 1986.” 31 U.S.C. § 3729(e). As a result, there was no meaningful incentive for tax whistleblowers to come forward to the IRS before December 2006.

With a “tax gap” of more than $200 billion in estimated unpaid taxes each year, the old IRS program brought in less than $100 million annually–even though information from “insiders” historically has been quite productive for the IRS. In fact, the June 2006 Report of the Treasury Inspector General for Tax Administration (TIGTA) noted that, based on past experience,”examinations initiated based on informant information were often more efficient and effective.” (See June 2006 Report of Treasury Inspector General for Tax Administration–which predated Congress’ creation of the new IRS Whistleblower Rewards Program, entitled “The Informants Rewards Program Needs More Centralized Management Oversight,” No. 2006-30-092. (
http://www.treas.gov/tigta/auditreports/2006reports/200630092fr.pdf).
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Bogus Tax Shelters, Tax Fraud, and Tax Evasion Are Targeted by IRS and Justice Department

April 8, 2008
Michael Sullivan

Bogus tax shelters and other tax fraud and evasion are among the common reports by tax whistleblowers to whistleblower attorneys. Today, the government launched a new, coordinated federal effort by the IRS, the Justice Department’s Tax Division, and U.S. Attorneys to stop fraudulent tax claims, frivolous tax returns, and bogus tax schemes.

Quoting former Supreme Court Justice Oliver Wendell Holmes’ famous observation that “[t]axes are what we pay for a civilized society,” Nathan J. Hochman, the Tax Division’s Assistant Attorney General, announced
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Major Whistleblower Law Development: False Claims Act Correction Act Is Approved by Senate Judiciary Committee

April 3, 2008
Michael Sullivan

Today saw a major development that could affect every whistleblower, whistleblower attorney, and whistleblower case involving the False Claims Act, the nation’s primary whistleblower law. The U.S. Senate Judiciary Committee today approved new legislation to restore the False Claims Act to its originally intended strength, by eliminating a series of “loopholes” that dishonest government contractors had used to avoid liability.

Our whistleblower lawyer blog has written extensively about the False Claims Act, the qui tam statute that allows private citizens to report
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IRS Tax Whistleblower Program Update: IRS Authorizes Contingent Fee Arrangements for Retaining Lawyers in Tax Whistleblower Cases

March 28, 2008
Michael Sullivan

The new IRS Whistleblower Program authorized by Congress in December 2006 continued its progress this week, with the IRS’s announcement yesterday approving the use of contingent fee arrangements in retaining tax whistleblower attorneys.

Our whistleblower lawyer blog has followed the development of the new IRS Whistleblower Program since its infancy. The new tax whistleblower provisions are extremely important in the fight to protect taxpayer funds from fraud and other violations of the law.

In this March 27, 2008 announcement, Notice 2008-43, the
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IRS Whistleblower Program for Tax Whistleblowers: IRS Announces Sharing of Information with Whistleblowers and Their Attorneys Under Written Contracts

March 27, 2008
Michael Sullivan

The IRS this week announced another interesting development in its new IRS Whistleblower Program, which this whistleblower lawyer blog has followed closely. This announcement addressed new regulations permitting the IRS to share tax return information with whistleblowers and their lawyers under written contracts with the IRS, and also to advise those whistleblowers and their attorneys about the status of their whistleblower claims.

On March 25, 2008, the IRS announced new, temporary regulations permitting “disclosure of [tax] return information . . . to
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Whistleblower False Claims Act Cases Lead New Jersey Health Care Consultant to Settle Allegations of Medicare Fraud

March 16, 2008
Michael Sullivan

The Justice Department has announced that Besler & Company, Inc., a New Jersey health care consulting firm, and its principal Philip Besler, have agreed to settle allegations of fraud against the federal Medicare program, which were initiated by two qui tam whistleblower cases. The settlement is for $2.875 million, plus interest, paid to the federal government.

The settlement concludes that the Besler firm counseled hospital clients to improperly increase charges to Medicare patients, so that they would obtain enhanced reimbursement from Medicare.

Medicare pays supplemental
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IRS Tax Whistleblower Progress Continues with IRS Chief Counsel’s Advice on Informant Contacts

March 10, 2008
Michael Sullivan

The new IRS Whistleblower Rewards Program continues to take shape, as the IRS’s Chief Counsel has advised IRS employees on the contacts they may have with certain whistleblowers or “informants.”

The new IRS Whistleblower Program for tax whistleblowers is an exciting development. It has brought together a team of extremely qualified professionals at the IRS, and has provided them the legal means to create an effective whistleblower program.

This Notice (CC-2008-011) addresses what contacts IRS employees may have with (1) informants with information about their current employer; and (2) informants who act as a taxpayer’s representative in an IRS examination or other IRS matter.

The IRS’s dealings with whistleblower or informants can present sensitive issues of privilege and confidentiality of information, as our whistleblower lawyer blog has discussed previously (and as I have discussed in a panel discussion last Fall with IRS Whistleblower Office Director Stephen Whitlock.)

This Notice from the IRS Chief Counsel’s Office recognizes the need to protect “privilege issues that may be present when an informant is a current employee and/or the taxpayer’s representative. It should be assumed that a current employee or a taxpayer’s representative has access to information that may be privileged and there has been no affirmative waiver by the taxpayer of applicable privileges. The use of potentially privileged information by the Service can also have the same effect of tainting an issue or an entire case.”

The IRS Notice reiterates the “one-bite” rule that permits the government to use information from a private party, “even if the private party obtained the information in an illicit or illegal manner as long as the government is a passive recipient of the information and did not encourage or acquiesce in the private party’s conduct.” This “one-bite” rule is derived from a 1921 Supreme Court decision, Burdeau v. McDowell, 256 U.S. 465 (1921).
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“False Claims Act Correction Act” to Restore Qui Tam Whistleblower Law to Its Original Intent Goes Before Senate Judiciary Committee

February 26, 2008
Michael Sullivan

Tomorrow, the Senate Judiciary Committee will hold a hearing on a much-needed bill that will restore to its intended effectiveness the government’s primary law for combating fraud.

Our whistleblower lawyer blog has written previously about the “False Claims Act Correction Act.” The Act is one of the most significant developments in whistleblower law since the 1986 amendments that created the modern False Claims Act.

This is a bipartisan bill designed to restore the government’s “primary” tool for fighting fraud against taxpayers,
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State False Claims Act Is Considered in Louisiana

February 20, 2008
Michael Sullivan

The trend of new state False Claims Acts with qui tam whistleblower provisions continues, as Louisiana considers whether to adopt its own version of the federal False Claims Act.

The growing number of state False Claims Acts has been a frequent topic of this whistleblower lawyer blog. In 2007, New York, Georgia, and Oklahoma joined the 16 other states that have enacted versions of the federal False Claims Act, the government’s primary weapon for fighting fraud against
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Qui Tam Whistleblowers Awarded $140 Million Under False Claims Act in Medicare and Medicaid Fraud Cases in FY 2006

February 19, 2008
Michael Sullivan

Whistleblowers and their attorneys filing suit under the False Claims Act helped federal authorities recover $2.2 billion in Medicare and Medicaid fraud cases in fiscal year 2006, according to a government report just released. The whistleblowers or “relators” received $140 million of the proceeds for their efforts, under the qui tam provisions of the False Claims Act.

As this whistleblower lawyer blog has written about extensively, the federal False Claims Act is the government’s “primary” weapon for combating fraud. As health
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