AARP Applauds State Law to Combat Medicaid Fraud with Qui Tam Whistleblower Approach

We were pleased to see that Florida has joined New York, Georgia, Oklahoma and more than a dozen other states in creating a State False Claims Act with qui tam whistleblower provisions similar to the federal False Claims Act. As we have discussed at length on this whistleblower lawyer blog, Congress has created financial incentives for states to pass whistleblower laws with qui tam provisions to protect Medicaid funds.

Florida’s Governor signed the Florida False Claims Act into law on June 28, 2007.

Durable Medical Equipment Company Received Kickbacks from Pharmacy Owners in Health Care Fraud Case

In a Medicare fraud case of interest to whistleblowers and whistleblower attorneys, a Miami a federal jury convicted a home health care operator of conspiracy to defraud and submit false claims and receive kickbacks, conspiracy to commit health care fraud, and three counts of receiving kickbacks. Gisela Valladares, owner of PRN Home Health Care, Inc., faces up to 30 years in prison.

According to the Justice Department, two pharmacy owners billed Medicare for more than $20 million in connection with the referral of false prescriptions for “compounded” aerosol medications furnished by Valladares and other co-conspirator owners of durable medical equipment (DME) companies. The pharmacy owners paid kickbacks of approximately half of the money paid by Medicare.

Whistleblower Reveals Alleged Drug Price Schemes to Defraud Medicaid

When drug companies hide the true prices charged for prescription drugs, the pharma companies can violate laws protecting state Medicaid programs from being defrauded by “overpaying” for drugs. The experienced Medicaid fraud prosecutors of the Texas Attorney General’s Office have announced such allegations against three pharmaceutical manufacturers for tens of millions of dollars in Medicaid fraud in Texas.

For pharmaceutical products to be eligible for Medicaid reimbursement, the law generally requires that manufacturers accurately report “generally and currently available market prices” to the Medicaid program, according to the Attorney General’s release.

False Claims Act Case Continues Over Health Care Fraud Allegations

As other whistleblower attorneys who were former federal prosecutors know, Medicare fraud may sometimes lead not only to a qui tam whistleblower lawsuit, but also to prison time for the guilty party. A former home health care company owner now faces almost three years in prison after being convicted of defrauding Medicare of more than $1 million.

U. S. District Judge Nancy Edmunds in Detroit sentenced Amjad Khan, a certified public accountant and the former CEO of American Home Health Care Inc., to 33 months in prison. A False Claims Act case remains pending against the defendant.

Medicare Fraud and Medicaid Fraud Alleged by Nurses at Nursing Homes

Two nurses disturbed by nursing home abuse and neglect of nursing home residents–who apparently were subjected to gross nursing home malpractice–are the “whistleblowers” in a nursing home False Claims Act qui tam lawsuit in Missouri, which the U.S. Attorney’s Office in St. Louis has recently announced it has joined. The whistleblower suit alleges that the nursing home operator defrauded Medicare and Medicaid by providing care that was essentially “worthless” to the nursing home patients, according to news reports.

In this “quality of care” whistleblower case, the nurses alleged that many nursing home residents suffered from dehydration, weight loss, and preventable bed sores that eventually led to amputations; that nursing home staffing was cut to unacceptable levels to save money; and that other nurses misused patients’ medicines, which were not locked securely, according to reports.

The Food, Drug and Cosmetic Act prohibits pharmaceutical companies from marketing or promoting a drug for uses that the FDA has not approved. This practice is known in the industry as “off label marketing”. Increasingly, pharmaceutical companies have purposely engaged in off label marketing in order to increase profits at the price of public safety. Practitioners in this area see this every day. Whether the public and even the medical profession is aware of the extent of this practice is unknown. Nonetheless, it appears that the False Claims Act remains one of the best tools available to address this deplorable practice.

As an example of the problem, we noted in an article published in the Corporate Crime Reporter on May 8, 2007, that Medicis Pharmaceutical Corporation of Scottsdale, Arizona had agreed to pay $9.8 million to settle allegations filed under the False Claims Act against the company. Medicis promoted the use of a topical skin preparation called Loprox for use on children under the age of 10. The Justice Department and the whistleblowers involved, former Medicis employees, alleged that Medicis sales personnel had purposely targeted pediatricians urging these doctors to use Loprox as a treatment for diaper rash. This product had never been medically approved by the FDA for the treatment of diaper dermatitis or other skin disorders in children under 10. Nonetheless, Medicis sales personnel were aggressively marketing the product for these uses. While the story in the Corporate Crime Reporter did not detail how much profit had been generated from this off label marketing campaign, there was some accountability for this improper use of the product via the fine imposed. Unfortunately, and quite literally, we see these stories every day which is indicative of the fact that Big Pharma is pursuing profits over public safety.
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While there are many specific retaliation provisions unique to claims filed under the False Claims Act, with the Equal Opportunity Commission and/or arising out of Sarbanes-Oxley provisions, all of which protect informant employees from being retaliated against by their employer, a little known fact is that there is a general statute (42 U.S.C. § 1985) which makes it unlawful for two or more persons to conspire to “deter” a witness from testifying in Federal Court. This statute also makes it unlawful to “retaliate” against a witness for having so testified. The “deterrence” provision makes it unlawful for two or more persons to conspire to deter by force, intimidation or threat, any witness in any court in the United States from testifying to any matter pending therein freely, fully and truthfully. The “retaliation” provision makes it unlawful to injure a witness on account of his having testified in a court in the United States. Conspiracy to retaliate consists of two or more people acting in concert to retaliate against a witness for having testified in a judicial proceeding and injury as a result of the conspiracy, and an nexus between the act of testifying and the conspiracy.

The typical case where this statute might apply is one where a company employee testifies against the employer in a federal proceeding and then is terminated as a result of the testimony. Even a threat to take retaliatory actions against a witness should they provide truthful testimony is actionable under this statute. Thus, if a company employee is testifying before a federal body and is “advised, counseled or warned” that should they testify unfavorably to the company they may be subject to reprisal, this would be an actionable case under this statute.

In the United States Supreme Court of Haddle v. Garrison, 525 U.S. 121, 119 S. Ct. 489, 148 L. Ed. 2d 502 (1998), (a case arising in Georgia which involved this firm) the Supreme Court held that third party interference even with an “at will” employment relationship states a claim for relief under § 1985. The Court reasoned that because “the gist of the wrong at which § 1985 is directed is not deprivation of property, but intimidation or retaliation against witnesses in federal court proceedings,” the loss of at will employment can injure a plaintiff for purposes of the statute. Thus, even in an “at will” state such as Georgia, if an employee is intimidated by an employer in such a way as to interfere with their ability to provide testimony against the employer in a federal court context, then such a case is actionable notwithstanding the restrictions of a state “at will” employment doctrine.

Even though the Internal Revenue Service has had a Rewards Program for many years, until recently, there was very little encouragement for tax whistleblowers or informants to come forward concerning their knowledge of the under-reporting of taxes. While it is well known that income tax evasion costs taxpayers approximately $300 billion a year, the Internal Revenue Service in the past has failed to aggressively address this problem. While enforcement actions against criminals are designed to help deter tax fraud, the $300 billion annual figure is proof, in and of itself, that such deterrence has not been effective in collecting back taxes. Moreover, the old “Form 211” IRS Rewards Program was singularly unsuccessful.

According to government statistics, between the fiscal years 2001 and 2005, only $27.3 million was paid by the Internal Revenue Service to informants as rewards for tips and information. The average individual reward under the old IRS Rewards Program was a mere $24,000.00. This is in stark contrast to results achieved under the Federal False Claims Act where awards for whistleblowers can and typically are in excess of 6 or 7 figures. The new IRS Whistleblower Rewards Program provides enhanced inducement for whistleblowers to come forward when they have knowledge of under-reported income. The new program is greatly improved because it provides that the whistleblower will receive anywhere between fifteen to thirty percent (15 – 30%) of any collected back taxes, plus interest and penalties on the back taxes owed. Moreover, to encourage the whistleblower to have confidence in the system, the whistleblower even has the right to appeal to a U.S. Tax Court any decision by the IRS that their rewards should be reduced below 30%, if the Internal Revenue Service is successful in collecting back taxes based on information provided by the whistleblower.

Our firm has already seen very encouraging signs that the new program is working as intended. We have received numerous inquiries from informants, on a nationwide basis, coming forward with significant information about the evasion of back taxes owed. We have also been encouraged by the response of the Internal Revenue Service to these claims when we have presented them. Thus, it appears that the new IRS Rewards Program is actually encouraging whistleblowers and informants to come forward and provide the Internal Revenue Service with information concerning their knowledge of income tax evasion. While the program is less than seven months old and is just getting started with very little back taxes actually collected, the most encouraging news is that the IRS has opened numerous files and is now embarked on numerous investigations which otherwise would not be taking place at all had the whistleblowers not come forward under the new program. This is certainly a change in the right direction.

IRS whistleblowers and whistleblower attorneys take note: accounting firms participating in selling tax shelters were jolted by today’s announcement of the indictment of four Ernst & Young partners for tax fraud conspiracy and other federal criminal charges relating to tax shelters.

The four accountants were alleged to have marketed tax shelter transactions based on fraudulent factual scenarios, through which wealthy taxpayers could eliminate or reduce the taxes paid to the IRS, according to the government’s announcement. All four persons charged had worked in E&Y’s group that developed tax shelters, initially named VIPER (“Value Ideas Produce Extraordinary Results”), and later SISG (“Strategic Income Solutions Group”), according to the government.

The indictment announced by the U.S. Attorney for the Southern District of New York named present or former E&Y tax partners in Texas, New York, and Louisiana. Three of the four reportedly were also lawyers. The indictments allege a scheme to defraud the IRS through fraudulent tax shelters from 1998 through 2004.

I was excited to be invited to participate in today’s signing of the new Georgia “State False Medicaid Claims Act,” the newest state qui tam whistleblower law. The bill’s sponsor, Rep. Edward Lindsey, asked this whistleblower lawyer blog author to join him and representatives of the Georgia Department of Community Health in the Governor’s Office for the signing ceremony.

Having worked with legislators on this bill, I was very happy to celebrate the law’s passage today:Participating in the signing ceremony with Governor Sonny Perdue were (shown above from left to right) Carrie Downing, Director of Legislative and External Affairs of the Georgia Department of Community Health; Dr. Rhonda Medows, Commissioner of the Georgia Department of Community Health; Inspector General Doug Colburn; Governor Perdue; Rep. Edward Lindsey, sponsor of the State False Medicaid Claims Act; whistleblower lawyer blog author Michael A. Sullivan of Finch McCranie, LLP; and Philip Consuegra, Legislative Assistant to Rep. Lindsey.

With an excellent draft bill already prepared by the State Law Department headed by Attorney General Thurbert Baker and his Senior Assistant AGs Mary Beth Westmoreland and Charlie Richards, I had provided input to Rep. Lindsey on clarifying and improving the bill, before the Legislature considered it. Inspector General Doug Colburn and I then made the rounds through the three legislative committee hearings to explain how the False Claims Act works, and how the new State False Medicaid Claims Act would operate in Georgia.

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