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Whistleblower Blog

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

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

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

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

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

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.

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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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What the $104 Million IRS Whistleblower Award to Former UBS Banker Means for Tax Whistleblowers

With the current debate over raising tax rates becoming increasingly heated, a bipartisan, common-sense effort to recover more of the several hundred billion dollars that tax cheats already owe deserves far greater emphasis.

The IRS in September sent a smart and principled message that it is willing to encourage those with the best information about massive tax evasion to come forward. The IRS agreed that the billions in taxpayer funds it has begun to recover based on information from UBS whistleblower Bradley Biirkenfeld should warrant the first $100 million tax whistleblower award ever announced.
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Another Record Year–False Claims Act Recoveries Triple in FY 2012

Each Fall, the Justice Department tallies its recoveries of taxpayer dollars that have been pilfered through fraud directed at federal programs. A year ago, DOJ proudly announced $3 billion in recoveries in False Claims Act cases, and a record $8.7 billion recovered in the three years starting in 2009.

Late this year, DOJ will announce that its fraud recoveries tripled from $3 million in FY 2011 to more than $9 million in FY 2012. This trend of increasingly large recoveries of stolen taxpayer funds proves once again the effectiveness of laws like the False Claims Act, which incentivize whistleblowers to expose fraud through its qui tam provisions.

Although health care cases account for the vast majority of FCA recoveries, growing areas include banking, mortgage, and pension fraud cases involving fraudulently obtained taxpayer dollars, as my colleagues at Taxpayers Against Fraud point out. States are also using their own false claims laws to recover stolen taxpayer funds.

In qui tam cases, private citizen whistleblowers (known as “relators”) file suit on the government’s behalf to expose fraud against taxpayer funds. The whistleblowers can receive 15-25% of the government’s recovery of stolen funds if the government prosecutes the case, and 25-30% if the government leaves it to the whistleblower to pursue the recovery.

Consider the history of False Claims Act recoveries that have totalled more than $39 billion since 1986, when Congress authorized meaningful rewards to whistleblowers:
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Executive Summary of “Georgia Taxpayer Protection False Claims Act”

Recently, I was asked to explain the newly enacted “Georgia Taxpayer Protection False Claims Act” to some 200 city and county attorneys in Georgia. Although our firm has qui tam False Claims Act cases pending around the country, I take particular interest in making successful this law that I helped draft.

Since then, I have had many calls from attorneys about the new state False Claims Act, which includes qui tam provisions allowing whistleblowers to file suit and share in the recovery. Thus, I am summarizing here some major points about the law:

The Georgia Taxpayer Protection False Claims Act is a state version of the extremely successful federal False Claims Act (FCA). The FCA is the federal government’s primary civil tool for combating fraud directed at taxpayer funds. The majority of states already have such a law designed to stop and deter fraud against state government.

Background: The FCA originally was enacted during the Civil War. In 1986, President Ronald Reagan signed into law an amended version of the FCA, which has since generated more than $30 billion in recoveries from those who have defrauded the government. The FCA also helps deter fraud by those who do business with the government.

State False Claims Acts: As noted, based on the federal FCA’s great successes since 1986, Sen. Charles Grassley has helped lead efforts to encourage states to pass their own versions of the FCA. Congress established financial incentives for states that enact their own versions of the FCA that closely follow the FCA’s terms, through the Deficit Reduction Act of 2005. (Those states receive an extra 10% of Medicaid fraud recoveries.) Congress amended the federal FCA in 2009-2010 to increase the FCA’s effectiveness.

At least twenty-eight other states now have enacted their own False Claims Acts, which are also based on the federal FCA. The majority of these states’ laws protect all state spending of any nature.

On May 24, 2007, Georgia’s “State False Medicaid Claims Act” became law. It is based on the 2007 federal FCA, but protects only Medicaid spending. The new 2012 Georgia Taxpayer Protection False Claims Act now protects all state and local government spending.

In sum, the new Georgia Taxpayer Protection False Claims Act (1) protects all state and local government spending from fraud, and not simply Medicaid spending; and (2) amends the State False Medicaid Claims Act to conform to the 2009-2010 federal FCA amendments. All states are required to conform to those amendments by 2013, or lose the federal incentive of an additional 10% of Medicaid fraud recoveries.
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First SEC Whistleblower Award Made Today–Reading the Tea Leaves

This morning’s announcement that the SEC has made its first award to a whistleblower under its new SEC Whistleblower Program established by Dodd-Frank leaves some clues about the message the SEC intends to send.

Speed: The SEC wasted no time–the award came barely two years after Dodd-Frank’s passage, and a little more than a year after the SEC finalized its SEC whistleblower rules. SEC Office of the Whistleblower Sean McKessy had seemed eager to have the SEC move quickly to utilize whistleblower information,
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Release of Incarcerated UBS Whistleblower Birkenfeld Shifts IRS Whistleblower Debate to New Round of Issues

In presenting programs on how to protect whistleblowers from criminal and civil liability, we have watched in amazement as UBS whistleblower Bradley Birkenfeld got himself incarcerated for a felony conviction–despite apparently being one of the most valuable IRS whistleblowers ever.

Today’s announcement of Birkenfeld’s release after serving almost 30 months of a 40 month prison sentence–reportedly based on “good time” credits accrued, not some change of heart by the Justice Department lawyers who prosecuted him–comes amidst blistering criticism by Sen. Chuck Grassley of impediments that some IRS officials have created to the functioning of the IRS Whistleblower program. Grassley was so frustrated that he refused to allow nominations of two persons for Assistant Secretary of the Treasury positions to proceed until July 30, after his arm-twisting for information about the tax whistleblower program had made some headway.

Now that Birkenfeld has been released, attention will shift to his claim to receive what he contends is his lawful percentage of the huge sums that the IRS is reaping based on his disclosures about UBS and US taxpayers. Based on my discussions with IRS criminal agents, they will howl if Birkenfeld receives any reward of significance.

Some believe that Birkenfeld’s “holding back” cost the IRS dearly in its investigation of a former Birkenfeld/UBS client. They will argue, “Why reward a convicted felon?”

On the opposite extreme, some persons who advocate for whistleblowers have loudly condemned the entire prosecution of Birkenfeld. Those arguments have struck me as short-sighted. They ignore the principle that there is a rule of law that must apply to all of us, including whistleblowers.

Based on our review of available Birkenfeld court filings and transcripts, he apparently violated the cardinal rule that a whistleblower cannot “hold back” information about his own alleged misdeeds in his “cooperation” with the government. This is not a novel theory, but a long-settled principle.

To obtain a “pass” for one’s own felonious conduct, one must tell it all. (Read Birkenfeld’s sentencing transcript to see how he failed to dispute then the essential facts relied on by the government). Rather than frighten potential whistleblowers, whistleblower attorneys should encourage them to learn the facts by pointing out Birkenfeld’s apparent errors–and show how easily those errors can usually be avoided.

Except for those who have a financial interest in representing Birkenfeld, I do not see how whistleblower advocates would fail to appreciate how failing to prosecute Birkenfeld under these circumstances would have been even more damaging to the cause of whistleblowers generally.

Given that he apparently flouted this cardinal rule and thus allegedly misled prosecutors, his serious misconduct cannot be ignored. Opponents of compensating whistleblowers for revealing fraud would use an unchastened and unprosecuted Birkenfeld as “red meat” to try to undermine–if not repeal–the IRS whistleblower law.
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SEC Whistleblower Rules Have It Right: Report Shows Most Whistleblowers Report Internally First

When the SEC debated in 2011 requiring “internal” reporting within companies as a prerequisite to filing an SEC Whistleblower claim under Dodd-Frank, business interests howled that any other rule would “destroy” compliance programs.

Never mind that the vast majority of whistleblowers have always raised concerns about illegal conduct internally before reporting to the government. Whistleblower lawyers already knew that fact from twenty-five years of experience with the False Claims Act–the nation’s major qui tam whistleblower law that inspired the new SEC Whistleblower Program.
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“Taxpayer Protection False Claims Act” Is Signed Into Law in Georgia

The nation’s newest state False Claims Act was signed into law today by Georgia Governor Nathan Deal, after passing unanimously in both houses of the legislature.

The “Georgia Taxpayer Protection False Claims Act” protects all taxpayer dollars spent not only by the State, but also by counties, municipalities, school districts, hospital authorities, and other local public bodies or entities.

Like the federal False Claims Act, this Act combats fraud and false claims against taxpayer funds by imposing “treble” damages and civil penalties of
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Damages and Penalties in Qui Tam Cases Under the False Claims Act to Be Addressed at ABA Conference

A critical issue in qui tam cases under the False Claims Act is how government lawyers and whistleblower attorneys prove damages caused by the fraud and false claims involved.

This whistleblowerlawyerblog‘s co-author MIchael A. Sullivan has been asked to moderate a panel discussion on “Recent Developments on Damages and Penalties” at a leading American Bar Association conference on the False Claims Act, the 2012 ABA National Institute on the Civil False Claims Act and Qui Tam Enforcement, on June 6-8, 2012
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IRS Misses Golden Opportunity in Refusing to Modify Tax Whistleblower Rule

In a controversial decision today, the IRS squandered an opportunity to help close the tax gap by attracting more whistleblowers with significant information about large tax schemes. The public will suffer as a result.

Stubbornly, the IRS rejected calls for a common sense approach to rewarding tax whistleblowers, as it refused to modify a proposed rule that narrowly defines the categories of cases that should justify awards to whistleblowers.

At issue is what Congress meant by the term “collected proceeds”–an undefined phrase
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Another Financial Fraud False Claims Act Case Nets Millions from Lender

Financial fraud cases under the False Claims Act continue. A Pennsylvania lender has agreed to pay $3.9 million in a False Claims Act case over alleged false statements in mortgage loan applications for loans insured by the U.S. Department of Housing and Urban Development (HUD). The loans were made to two nursing homes.

The government contended that Capmark Finance LLC misrepresented the borrowers’ creditworthiness in these two applications for mortgage loans. When the loans defaulted, the FHA sustained losses.

The Financial Fraud Enforcement Task
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