2015 False Claims Act Recoveries Total $3.5 Billion

The U.S. Justice Department recovered more than $3.5 billion in settlements and judgments stemming from civil fraud cases against the government in fiscal year 2015. This marks the fourth year in a row that Justice Department recoveries met or exceeded the $3.5 billion mark.

Since 2009, the government has recovered $26.4 billion in cases brought under the False Claims Act. Most of the recoveries stemmed from qui tam (or whistleblower) provisions under the FCA. Of the total 2015 False Claims Act recoveries, more than $2.8 billion can be traced back to whistleblower lawsuits.

The government paid out $597 million in whistleblower rewards to the brave men and women who filed qui tam complaints in 2015, often putting their careers in jeopardy in the name of pursuing justice.

More and More Whistleblowers Are Coming Forward, Leading to Greater Recoveries 

False Claims RecoveriesThe number of whistleblower lawsuits has grown significantly since 1986, with 638 qui tam lawsuits filed last year. The growing number of whistleblowers has also led to increased recoveries for the government. In the period between January 2009 and the end of fiscal year 2015, the government recovered $19.4 billion in settlements and judgments stemming from qui tam lawsuits and paid out roughly $3 billion in whistleblower awards during the same time period.

The False Claims Act was amended in 1986 to, among other things, encourage whistleblowers to come forward if they had knowledge of fraud. Then in 2009, the Fraud Enforcement and Recovery Act made additional improvements to the FCA and other fraud statutes. Most recently in 2010, the Affordable Care Act added vital protections and inducements for whistleblowers, and strengthened the Anti-Kickback Statute.

Health Care Industry Continues to be Pain Point for Fraud and Abuse 

According to the Justice Department, $1.9 billion in fiscal year 2015 False Claims Act recoveries came from the health care industry alone. These recoveries stemmed from settlements and judgements for providing unnecessary or inadequate care, paying kickbacks to health care providers in order to incentivize the use of goods and or services, and overcharging for goods or services paid for by government health care programs.

Two of the largest 2015 False Claims Act recoveries came from Denver, Colorado-based DaVita Healthcare Partners, the nation’s leading provider of dialysis services. In one case, DaVita agreed to pay $450 million to settle claims that it knowingly generated unnecessary waste in administering two of the company’s drugs—Zemplar and Venofer—to dialysis patients. DaVita then billed the government for costs associated with waste that could have been avoided. In a separate case, DaVita paid another $350 million to resolve claims that it paid kickbacks to doctors in an effort to induce patient referrals to the company’s many dialysis clinics throughout the country.

Hospitals were another sector of the health care industry that played a part in the large number of 2015 False Claims Act recoveries. Hospitals collectively paid $330 million in settlements and judgments stemming from fraud claims. Pharmaceutical companies also paid a collective $96 million, and skilled nursing homes and rehabilitation facilities paid a collective $38 million.

Government Contractor Fraud 2015 False Claims Act Recoveries 

Fraud allegations involving government contractors accounted for $1.1 billion in settlements and judgments in 2015, which brings the total government contractor fraud recoveries since January of 2009 to nearly $4 billion.

Some of the most significant government contractor 2015 False Claims Act recoveries:

  • Supreme Group B.V. ($146 Million):

    The government accused Dubai, United Arab Emirates-based Supreme Group and several subsidiaries of submitting false claims to the Department of Defense for food, fuel, water and cargo transportation for American troops in Afghanistan. Supreme Group affiliates Supreme Foodservice FZA and Supreme Foodservice GmbH pleaded guilty to related violations, paying over $288 million in criminal fines.

  • Lockheed Martin Integrated Systems ($27.5 Million): 

    A Lockheed Martin subsidiary, Lockheed Martin Integrated Systems agreed to pay $27.5 million to settle allegations that the company charged the government at a higher level for work performed by employees who lacked qualifications necessary for performing the higher level work.

  • The Boeing Company ($18 Million): 

    The Boeing Company agreed to pay $18 millionto settle a whistleblower allegations claiming the company improperly charged the government for aircraft maintenance. The whistleblower, James Thomas Webb, Jr., received a reward of $3,060,000 for bringing the fraud allegations to the government’s attention. He was represented by whistleblower attorneys at Baum, Hedlund, Aristei & Goldman.

Housing and Mortgage Fraud Produced $365 Million in 2015 False Claims Act Recoveries 

From 2009 until the end of fiscal year 2015, DOJ has recovered over $5 billion in housing and mortgage fraud. This total includes 2015’s recoveries, which totaled $365 million.

Among the most notable housing and mortgage 2015 False Claims Act recoveries:

  • First Tennessee Bank ($212.5 Million): 

    From 2006 to 2008, First Tennessee admitted to originating and endorsing mortgages for federal insurance that did not meet Federal Housing Administration (FHA) requirements. The bank further admitted that it knowingly failed to report these deficiencies, despite widespread knowledge of their existence among senior managers in early 2008.

  • MetLife ($123.5 Million): 

    MetLife Bank, N.A., a subsidiary of MetLife, Inc., purchased First Tennessee in 2008. MetLife admitted to similar misconduct as described in the First Tennessee case between 2008 and 2012.

  • Walter Investment Management ($29.63 Million): 

    Walter Investment Management settled claims that its subsidiaries violated the Department of Housing and Urban Development’s rules for the Home Equity Conversion Mortgages programby submitting false claims for fees and other costs associated with servicing reverse mortgage loans. Reverse mortgages allow elderly people to access the equity in their homes by providing monthly payments, which enable them to cover expenses whilst remaining in their homes. Banks and other institutions that service reverse mortgages are eligible for HUD insurance, provided they meet requirements. Walter Investment Management was accused of failing to meet HUD requirements.

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New Study: Corporations Allowed to Write Off Billions in Court Settlements as Tax Deductions

Government Contractors That Commit the Most Fraud Also Spend the Most on Lobbying

New Study: Corporations Allowed to Write Off Billions in Court Settlements as Tax Deductions

‘The cost of doing business’ is a phrase we have used a number of times on this blog to describe the prevailing attitude that corporations appear to take when they pay millions (or even billions) to settle allegations of wrongdoing. At first glance, that phrase may seem overly cynical in relation to settling fraud charges—companies don’t literally view these settlements as the cost of doing business…right?

According to a new study conducted by the United States Public Interest Research Group Education Fund, that phrase is actually more applicable under these circumstances than many of us realize.

When corporations commit fraud, engage in financial scams, spill chemicals, manufacture dangerous products, or commit other misdeeds, they very rarely go to jail the way ordinary people would under the same set of circumstances. Instead, corporations are permitted to negotiate out-of-court settlements resolving the allegations of wrongdoing in return for agreed-to payments or promised remedies.

PIRG StudyEven though these settlements are made on behalf of the American people, they are not subject to any transparency standards, according to the U.S. PIRG study. Worse yet, companies are often allowed to write the settlements off as tax deductions. Put simply, corporations literally get to chalk up these settlements as ‘the cost of doing business.’

U.S. tax code allows businesses to deduct from their taxable income “all ordinary and necessary business expenses,” but they are prohibited from deducting penalties or fines paid to the government. This means that out-of-court settlements fall in a legal gray area as far as our tax code is concerned—settlement payments aren’t penalties or fines, but they are required payments made to address allegations of wrongdoing.

When the government agency that signs off on a settlement doesn’t have a standard for addressing tax liability, corporations are free to write the settlement off as a normal business expense.

You’re probably thinking, “But government agencies all have a strict policy for these circumstances, right?”

You’d think so, but according to the U.S. PIRG study, five of the largest government agencies that sign off on settlement agreements with corporations rarely specify the tax status of the subsequent payments, which means that the billions paid to resolve allegations of wrongdoing are considered no different than a business dinner.

We all suffer as a result of this for two reasons:

  • The write off status undermines the deterrent value those settlement payments are supposed to represent. Rather than sending a message of atonement for wrongdoing, the message is that the wrongdoing is literally accepted as the cost of doing business.
  • When corporations are permitted to write off settlement payments, the taxpaying public ultimately has to make up for the lost revenue in the form of higher taxes, cuts to vital public programs, or more national

Of course, the public really isn’t aware of just how much money is being lost in these settlements, because they are confidential. We get numbers from the Justice Department every year, saying just how much was returned to the government, but we have no idea what the real value is when settlement agreements are signed and tax implications are not considered.

If you want to see a clear example of this in action, look at the 2013 JPMorgan Chase and Co. case in which the bank was accused of illegally packaging, marketing, selling and issuing residential mortgage backed securities. The settlement from the case received a lot of attention (and outrage) because it was the largest amount in Justice Department history, and reports revealed that the government allowed JPMorgan to classify the $11 billion as a “legitimate business expense.”

Similarly, the Justice Department announced a blockbuster settlement with British Petroleum in October of this year over the 2010 Deepwater Horizon oil spill. BP will pay $20.8 billion settlement, of which the company will be able to write off approximately $15.3 billion as a deductible business expense.

Key Findings From the U.S. PIRG Study

The U.S. PIRG study looked at all out-of-court settlements reached between 2012 and 2014 for which press releases were posted by the Justice Department, the Environmental Protection

Agency, the Securities and Exchange Commission, the Department of Health and Human Service, and the Consumer Financial Protection Bureau.

  • Of the five agencies studied, not one has a publicly announced policy concerning how the agencies address the tax status of the settlements they sign.
  • In the ten largest settlements announced during the study period, companies were required to pay nearly $80 billion to resolve federal charges of wrongdoing. However, the same companies can write off at least $48 billion as tax deductions.
  • Some agencies do take action to limit tax deductibility for the settlements they negotiate, while others do little to address the issue. Likewise, some agencies have stronger practices in place than others to prevent settlements from being written off as tax deductions. The EPA and the CFPB, for example, are the most consistent in ensuring that at least portions of the settlements they sign are explicitly not tax-deductible.
  • The Justice Department signed most of the largest settlement agreements of all the federal agencies that were studied. Only 18.4 percent of settlement dollars during the period of study were explicitly not tax-deductible. Worse, only 15 percent of settlement dollars negotiated by the SEC included language to ensure that the settlement amounts were not tax-deductible (at least for those with publicly available settlement language).
  • The most transparent agencies in terms of making settlement terms publicly available were the EPA and the CFPB. The least transparent were the Justice Department and the SEC.

What Needs to Happen? 

It’s pretty obvious, isn’t it? The tax code should prohibit corporations from writing off payments made in connection with allegations of wrongdoing, unless reasons are specified in settlement agreements themselves. Furthermore, in the interest of transparency, all agencies should be required to publicly post the details of all settlement agreements. After all, these agreements are ostensibly made on our behalf, so we deserve to know the stakes. In the event that an agreement needs to be kept confidential, the appropriate agency as well as the corporation involved should have to explain why the terms should be kept confidential.

Government Contractors That Commit the Most Fraud Also Spend the Most on Lobbying

A handful of government contractors are responsible for paying the lion’s share of many billions in fines, settlements and court judgements stemming from misconduct dating back to 1995, according to a new database published by the Project on Government Oversight (POGO) last month. The contractors that have paid the most in penalties to the government share another dubious distinction: they spend the most on lobbying efforts.

The POGO database is filled with roughly 2,500 resolved and pending misconduct instances committed by government contractors over the last 20 years. Since 1995, the contractors cited in the POGO database have paid at least $92 billion in fines, settlements, and court judgments. The phrase “at least” is used only because a number of the investigations were settled confidentially, or the investigations involved multiple entities with no clear breakdown of how much each entity paid.

usa-dollar-bills-1431130-mThe database uncovered 17 different types of misconduct. Labor and environmental violations led the way as the most common, both of which accounted for a combined 40 percent of reported instances that were resolved. Government contract violations, including fraud, accounted for roughly 22 percent of the reported instances that were resolved.

According to POGO, BP P.L.C. (British Petroleum) alone paid more than 37 percent of the $92 billion total. Most of the cited misconduct stemmed from the Deepwater Horizon explosion and oil spill of 2010. Not to be outdone, pharmaceutical giants GlaxoSmithKline (GSK), Pfizer, Merck, and Schering-Plough (which merged with Merck back in 2009) accounted for another 27 percent of the total. All four companies paid a combined $24.6 billion in misconduct penalties stemming from cases that accused the companies of manufacturing unsafe drugs, financial irregularities, and illegal marketing practices.

In recent years, misconduct perpetrated by fossil fuel and pharmaceutical contractors have eclipsed that of military hardware contractors in penalty amounts and in the number of cited incidents. Of course, this is not to say that defense contractors like Boeing aren’t getting into its own fair share of dirt.

According to the database, Boeing has paid over $1.4 billion in penalties since 1995. The aircraft manufacturing firm—which contracts with the government to provide military equipment—has a long list of misconduct. Boeing has overbilled the government on the KC-10 aerial refueling tanker, submitted false invoices, and an array of environmental crimes, including waterway contamination and spilling jet fuel. In total, Boeing has been identified in the POGO database 60 times for fraud or violating the terms of a government contract. Only BP, Exxon Mobil and Lockheed Martin have more resolved misconduct charges.

How Can Government Contractors Whitewash Misconduct? The Answer Might be Lobbying 

You would think that after 60 resolved cases of alleged misconduct (not to mention the 13 cases that are still pending), the government would take a hard look at increasing contract oversight with a recidivist offender like Boeing. Surely there are other contractors out there that would love to earn lucrative government contracts and wouldn’t violate the terms by stealing taxpayer money (as a matter of fact, the POGO database shows many contractors with relatively “clean” misconduct records).

So why hasn’t the contractor fallen out of favor with the government? One reason might be that Boeing is the second largest political spender among the contractors listed in the database. In the first nine months of this year, Boeing spent a reported $16 million on lobbying efforts. Last year, Boeing spent $1.9 million in campaign contributions to candidates at the local and federal level on both sides of the aisle. This, of course, is in addition to the undisclosed amount that the company contributes to trade associations, think tanks, public relations efforts, and, last but not least, political groups that use “dark money” to influence elections. These 501(c)(6) tax entities are not compelled to disclose donor information.

Below is a list of other top government contractors and their instances of misconduct:

  • Exxon Mobil, which is the beneficiary of oil and gas contracts, has 84 instances of cited misconduct that have been resolved, according to the database. Since 1995, the company has paid $2.8 billion in penalties. As far as lobbying efforts are concerned, Exxon Mobil is the ninth largest spender on lobbying so far this year among individual firms.
  • Lockheed Martin, the beneficiary of aerospace contracts, has 79 instances of cited misconduct that have been resolved, and the firm has paid a total of $751 million in penalties since 1995. Lockheed Martin is the seventh largest spender on lobbying so far this year among individual firms.
  • General Electric, the beneficiary of defense contracts, has 59 instances of cited misconduct that have been resolved. GE has paid $638 million in penalties since 1995. So far this year, GE has spent more money on lobbying efforts than any other individual company.

Aside from the above government contractors, the following firms were also flagged for high political spending and high instances of misconduct:

  • BP
  • Honeywell
  • FedEx
  • Chevron
  • Halliburton
  • Shell
  • Pfizer
  • General Motors
  • GlaxoSmithKline
  • Merck

Federal Criminal Prosecutions of Corporations on the Decline 

It’s difficult to quantify what lobbying can buy a company, though it appears that continued access to business affairs with the government is certainly a part of it and worth the millions being spent. The money may also go toward keeping individuals responsible for misconduct out of jail.

According to a POGO investigator, less than seven percent of enforcement actions levied against the government contractors in the database included criminal prosecutions. This finding fits nicely with the results of another study published by the Transaction Records Access Clearinghouse (TRAC), which said that over the past 10 years, federal criminal prosecutions of corporations have declined by nearly 30 percent.

This year, Deputy Attorney General Sally Quillian Yates delivered a speech about corporate enforcement that said corporate misconduct “isn’t all that different from everything DOJ investigates and prosecutes. Crime is crime.” Yates added that it was the department’s job to hold “lawbreakers accountable regardless of whether they commit their crime on the street corner or in the boardroom.”

To Yates’s point, the Department of Justice issued a memorandum in September that outlined a new policy: to focus on specific people within corporations that commit misdeeds. It’s better late than never to make these changes, but why has there been such a long wait to do this? Why did we have to watch helplessly as the government continued to hand taxpayer dollars back to disreputable contractors?

Criminal prosecutions for corporate crime will go a long way toward stopping fraud and other misdeeds. Those who seek to steal from taxpayers will think twice about it if they were to land in prison after being caught. Now, the worst case scenario in an overwhelming amount of cases is that the company takes a financial hit, which is often a drop in the bucket when you consider industry profits.

Will the new policy shake things up? Will we start to see more fraudsters being criminally prosecuted? Here’s hoping…

Mortgage Fraud and Nursing Home Fraud Cases See Millions Returned to Government

The Justice Department settled two massive fraud cases this week that resulted in roughly $73 million being returned to the government. While both cases involve different industries, the fraud schemes share one key attribute: both companies named in the allegations tried to game the system in a way that left taxpayers on the hook for stolen funds. Thankfully the hard work of government prosecutors paid off, and these companies will be held accountable for their alleged fraud.

Franklin American Mortgage Company Settles False Claims Act Case for $70 Million 

Mortgage FraudOn Wednesday, Tennessee-based Franklin American Mortgage Company reached an agreement with the Justice Department to resolve government claims that the mortgage company violated the False Claims Act (FCA) by originating and underwriting mortgages that were insured by the U.S. Department of Housing and Urban Development’s (HUD) Federal Housing Administration (FHA) even though the loans were not eligible for government insurance.

According to the DOJ, Franklin American participated in the Federal Housing Administration’s insurance program as a direct endorsement lender (DEL) between 2006 and 2012. As a direct endorsement lender, a company has the ability to originate, underwrite and endorse a mortgage for FHA insurance. When a mortgage company (or a large bank) endorses a mortgage for FHA insurance, the company is, in effect, declaring that the loan meets HUD’s quality standards (HUD is the FHA’s parent agency).

Unfortunately, DEL’s are not subjected to review by the FHA or HUD when they endorse a mortgage loan for FHA insurance. In lieu of this lack of oversight, DELs are required to follow HUD rules that are in place to ensure that they are properly underwriting and certifying mortgage loans for FHA insurance. These rules require DEL’s to maintain a quality control program to prevent and correct any problems with their underwriting practices, as well as self-report any deficient loans they identify in the quality control program.

In the event that an endorsed mortgage loan defaults after a DEL has approved it for FHA insurance, the company that endorsed the loan is permitted to submit an insurance claim to HUD in order to recoup the losses on the defaulted loan.

According to Wednesday’s settlement agreement, Franklin American admitted the following:

  • During the years listed in the settlement agreement (January 1, 2006 to March 31, 2012), the mortgage company failed to comply with FHA origination, underwriting and quality control requirements.
  • Franklin American Mortgage Company certified mortgage loans for FHA insurance even though the mortgages failed to meet HUD requirements.
  • Between 2006 and 2010, Franklin American’s FHA mortgage loan production grew substantially. During this time, the company chose to employ unqualified junior mortgage loan underwriters who performed important underwriting functions. These and other mortgage underwriters were subjected to discipline if they did not meet high quotas established by the mortgage company.
  • Franklin American incentivized high volume production by offering bonuses to its FHA mortgage loan underwriters.
  • Loans underwritten by Franklin American were subjected to post-close audits that oftentimes showed that the mortgage loans didn’t meet HUD requirements. The audits highlighted a substantial amount of seriously deficient loans that were nonetheless underwritten by Franklin American. Even though the deficient loans were brought to the attention of management, the company only reported a select few deficiencies to HUD.

According to the settlement agreement, Franklin American’s alleged fraud caused the FHA to insure hundreds of mortgages that did not meet HUD requirements. As a result, the FHA incurred substantial losses after Franklin American was paid for insurance claims on those defaulted loans.

It doesn’t seem so long ago that we learned how fast and loose housing and mortgage companies were playing with other people’s money. When the world economy was nearly in shambles, we were all ready to do battle with these financial behemoths that dragged us right to the edge of the abyss.

Like many other companies—including some that are much bigger and handle significantly more business—Franklin American chose to ignore the widespread and systemic defects in lending practices so that they could make as much money as possible.

News of Wednesday’s settlement agreement should be music to the ears of many who believed that there would never come a day where these companies would be held accountable for their abuses. It is one in a series of steps necessary to hold financial institutions accountable for the havoc they caused. If these institutions are not held responsible history is doomed to repeat itself.

Regent Management Services to Pay $3.2 Million to Resolve Fraud Allegations 

On the health care front, Texas-based Regent Management Services reached a settlement agreement with the DOJ this week, agreeing to pay roughly $3.2 million to settle fraud allegations that the company accepted kickbacks from several ambulance companies in exchange for rights to Regent’s lucrative Medicare and Medicaid ambulance transport referrals. Regent Management Services, a skilled nursing facility company, has headquarters in Galveston and manages 12 nursing facilities in 11 different Texas cities that are separately owned and operated. As part of the agreement the state of Texas will receive approximately $533,000 to account for improper payments made by its Medicaid program.

At first glance, this settlement appears no different than countless other fraud cases involving kickbacks we have seen on this blog. Today’s settlement, however, has one key difference: this is believed to be the first settlement agreement in the country to hold a medical institution (hospital and skilled nursing facility) accountable for accepting kickbacks rather than the ambulance company solely being held accountable for these “swapping” arrangements.

The Anti-Kickback Statute prohibits a company or individual from offering, paying, soliciting or receiving payment in order to induce referrals of goods or services covered by government health care programs like Medicare and Medicaid. According to DOJ allegations, patients at Regent Management Service’s facilities were provided free or discounted ambulance transportation from a number of ambulance companies. In return, Regent referred other lucrative Medicare and Medicaid business to the ambulance companies that offered them free or discounted ambulance transport.

If Regent had not entered into this agreement with other ambulance companies, the skilled nursing facility company would have been responsible for transporting patients at significantly higher rates.

This case caught our attention because it demonstrates the government’s willingness to hold both sides of a swapping arrangement accountable when kickbacks are offered and received. This type of behavior is unfortunately common among unscrupulous skilled nursing facilities and ambulance companies.

If you have firsthand knowledge of this type of fraud, consider talking to a whistleblower attorney about it. An experienced whistleblower attorney can walk you through your options and help you decide whether filing a whistleblower lawsuit is the right decision. If you do decide to pursue a whistleblower claim, you may be eligible to receive a whistleblower reward if your case is successful and funds are returned to the government.

Contact us today to learn more about your rights as a whistleblower.

Novartis Settles Whistleblower Lawsuit for $390 Million

Novartis has agreed to pay $390 million to settle whistleblower allegations claiming the pharmaceutical company paid kickbacks to specialty pharmacies in an effort to induce patients into refilling company medications. Novartis, a multinational pharmaceutical company based in Basel, Switzerland, grossed more drug sales in 2013 than any other pharmaceutical company in the world.

The case began after a former Novartis sales manager filed a whistleblower lawsuit under the False Claims Act, which allows non-government employees to file claims on the government’s behalf and receive a share of any money recovered. The settlement agreement is between the U.S. division of Novartis and the federal government, as well as more than 40 states that joined the whistleblower lawsuit.
According to Reuters, Novartis offered deals to specialty pharmacies between 2007 and 2012. Specialty pharmacies typically dispense costly medications. In order to increase prescriptions of Novartis drugs like Myfortic (a transplant drug) and Exjade (an iron chelation drug), the pharma giant offered the specialty pharmacies rebates and referrals.

One of the specialty pharmacies implicated in the scheme was BioScrip. Last year, BioScrip gave the government information on the company’s financial relationship with Novartis, presumably to avoid facing stiffer penalties for accepting kickbacks from the drug maker (in the end, BioScrip agreed to pay $15 million and disclose information to the DOJ).

BioScrip officials told the Justice Department that it pushed patients to get Exjade refills at Novartis’ behest. Novartis admitted to the allegations, saying that BioScrip was one of three specialty pharmacies that the drug maker incentivized to increase drug prescription refills. One of the other specialty pharmacies-Accredo Health Group Inc., a unit of Medco Health Solutions-ended up settling kickback charges for roughly $60 million.iStock_000001746475_Large2

These incentives included the allocation of more patients to the specialty pharmacies based on the number of refills the participating pharmacies pushed on patients. In addition to asking the specialty pharmacies to push their medications, Novartis also asked that the pharmacies downplay any risks and side effects associated with the company’s drugs.

Novartis offered additional drug rebates to the participating specialty pharmacies when they met quarterly shipment goals based on the drug maker’s sales targets. According to the whistleblower lawsuit, Novartis used ‘score cards,’ detailing which pharmacies kept patients on Novartis drugs for the longest periods of time. According to a company statement issued by Novartis in the wake of the settlement announcement, these arrangements remained in place until around March of 2012.

The whistleblower lawsuit claims that a total of six different Novartis medications were involved in the scheme. The whistleblower, former Novartis sales manager David Kester, will receive a portion of the amount recovered in the settlement.

It should be noted that this and other recent cases have brought serious scrutiny to the specialized pharmacy industry. Prior to the Novartis settlement, drug maker Valeant Pharmaceuticals International Inc., came under fire for similar behavior. In the Valeant case, the company was forced to sever a business relationship with Philidor, another specialty pharmacy, over shady billing practices.

Novartis CEO Says Practice Cited in Whistleblower Suit is ‘Quite Common’

The Wall Street Journal wrote an article about the Novartis settlement in which Novartis CEO Joseph Jimenez said the rebates that Novartis offered to specialty pharmacies are designed to make sure that patients finish their course of medication. While in theory that may be true, when it came time to put into practice, Novartis demonstrated that the rebates and everything that went with them amounted to kickbacks.

Jimenez was quoted as saying the practice is actually “quite common” in the industry, adding that Novartis is still using the practice, even though the company had to pay $390 million to settle claims alleging that the company was, in fact, offering illegal kickbacks.

Jimenez also had this to say:

“We continue to maintain that specialty pharmacies must continue to play a role in ensuring patient adherence. How that is going to play out as to whether we change our behavior or not remains to be seen.”

Maybe you didn’t catch that last bit…”how that is going to play out as to whether we change our behavior or not remains to be seen.” A lot can be inferred by this comment, namely that Jimenez and the company he sits at the helm of, don’t seem to have any intention of changing the corporate culture that got Novartis into this hot water in the first place.

The sentiment from the quote may likely be shared by many other drug industry CEO’s that Jimenez rubs shoulders with. How, you ask, could a major drug company CEO feel so comfortable with taking such a stance?

Well, let’s look at some numbers:

According to Novartis’s 2014 annual report, the drug maker took in a reported $58 billion in net sales with $10.8 billion in free cash flow. With that much money sitting in the war chest, do you think Jimenez is sweating this $390 million whistleblower settlement? I suggest the answer is no.

After the WSJ piece went to press, Novartis issued a statement that, without specifically citing Jimenez’s comments, said the media’s coverage of his comments didn’t reflect Novartis’ position.

Until companies like Novartis (which has been the subject of a number of fraud allegations in recent years) are persuaded to change their ways, they will continue to engage in the same kind of fraudulent behavior, chalking up these huge payments to the government from fraud cases as the cost of doing business.

There are a number of things that can be done to stem the tide of corporate crime:

  • Put those with knowledge of egregious fraud in prison. When executives feel like they can cut corners in the name of profit, knowing full well that they will land on their feet when their tenure is over, they are more likely to bend the rules. Put these same executives behind bars when they knowingly break the law and they will surely think twice about the consequences of their actions.
  • Make the punishment match the crime. To you and me, $390 million sounds like a huge amount of money. To Novartis, with $10.8 billion in reserves, it’s a drop in the bucket. Will they think twice about engaging in the same behavior? If the company was worried about it, do you think Jimenez would’ve said what he said?
  • Blow the whistle. See corporate crime yourself? Come forward and report it. Retain a solid whistleblower attorney to help you file a claim. It can save taxpayer funds and you could see a sizable whistleblower reward for exposing the fraud.


Medicare Cuts Back Auditors Program Probing Hospital Overcharging

At a time of rampant health care fraud, Medicare has decided to slash the workload of auditors whose job is to scour hospital claims for reimbursement, looking for instances of fraud or overpayments. The news comes courtesy of a Medicare “technical direction letter” reviewed last week by the Wall Street Journal.

The auditors, known as recovery audit contractors, or RAC’s, review potentially inappropriate Medicare payments after the agency has already paid providers. Four companies—Performant Recovery, CGI Federal, Connolly and HealthDataInsights—are contracted as Medicare RAC’s.

Medicare Auditors ProgramIn 2013, RAC’s recouped $3.7 billion in Medicare overpayments. This was before the federal agency took steps to scale back other hospital audit activities and even temporarily suspended the audit program for a few months. The result: a year later in 2014, auditors were only able to recoup $2.4 billion in improper payments from hospitals overcharging Medicare.

Now here’s the rub: the funds returned only represent a small fraction of the total amount Medicare estimates it pays for improper bills on an annual basis. In 2014, Medicare paid out roughly $58 billion in improper payments to health care providers and health plans, this according to PaymentAccuracy.gov, a government website tracking the waste in federal agencies.

Beginning in January, RAC’s will only be able to review about 0.5 percent of the claims that Medicare pays out to hospitals or providers every 45 days, according to a Medicare release. That amounts to roughly a quarter of the prior threshold, and a meager 2 percent of all claims.

The move will undoubtedly make it more difficult for the auditors to return stolen funds to the government health care program. Medicare and Congress have already curbed the auditors’ abilities to go after certain commonly scrutinized payment claims involving short hospital stays, among others.

This is probably the time many of you are saying to yourself, ‘why is the government scaling back this program instead of doubling or tripling the efforts to return stolen taxpayer funds?’ A good question…

Couple of things:

–     Medicare has what you might call an alphabet soup of auditors: along with the RAC’s, you have the Medicare administrative contractors (MAC’s), comprehensive error rate testing (CERT’s) and zone program    integrity contractor (ZPIC’s). MAC’s are the intermediaries that actually process and pay out Medicare claims to health care providers. ZPIC’s and CERT’s investigate any Medicare payments that could be fraudulent and conduct other payment reviews.

–     In 2014, the Government Accountability Office (GAO) issued a report that said Medicare contract auditors may overlap duties and cause hospitals to have to deal with redundant reviews for payment claims.

–     The American Hospital Association (AHA) unsurprisingly cheered the GAO report. The AHA has long had it in for auditors—specifically RAC’s—because, according to the Association, they saddle hospitals with higher administrative costs and specifically go after high-priced inpatient claims.

That last bit is important for a couple of reasons:

1)      If RAC’s can only go after a small percentage of improper Medicare waste, it stands to reason that they should go after the most egregious of those improper payments.

2)      RAC’s are paid between 9 percent and 12.5 percent of identified overpayments and underpayments for all general claims. They receive between 14 percent and 17.5 percent for claims involving durable medical equipment.

These complaints by the AHA are unfortunate but predictable. Applauding the newly imposed restrictions on Medicare overpayment auditors sounds a bit like the town burglars applauding manpower cuts on the police force. But it is clear that the GAO report gave the AHA a serious talking point to bring up with friends in Congress.

Is the Medicare Auditors Program Effective?

Some might wonder whether the program is good for taxpayers. A common question: does the program cost taxpayers more to run than the program obtains in returned overpayments?


Medicare only pays the auditors if they produce results—they get a percentage of the fraudulent funds recovered something akin to how the government pays whistleblowers for bringing fraud to the attention of the Justice Department.

In other words, the Medicare auditing program pays for itself and then some.

According to the Council for Medicare Integrity, RAC’s produce results. Since the RAC program’s inception in 2005, more than $8.9 billion in fraudulent payments have been returned to the Medicare Trust Fund—in other words, it’s a vital program that helps ensure the solvency of a hugely important government program. Furthermore, recovery auditors have demonstrated an accuracy rate of more than 95 percent since the program began.

Recovery auditors are also the most highly regulated Medicare contractor. According to the GAO, recovery auditors are “subject to more rules and regulations than any other post-payment audit contractor.” An example: RAC’s are not permitted to act outside of the scope of work assigned by Centers for Medicare and Medicaid Services.

Let’s not forget that Congress mandated the creation of the RAC program because of rampant waste in the Medicare program…surely no one believes that the waste and abuse problem with Medicare has disappeared.

How Did We Get Here? 

The simple answer is that the hospital lobby has for years spent millions and millions of dollars to lobby Congress in an effort to restrict the abilities of recovery auditors to do their jobs. In 2014 alone, the hospital industry spent a reported $20 million in lobbying efforts.

And the lobbying is clearly working. Both Democrats and Republicans alike have proposed and backed legislation aimed at limiting the ability of auditors to sniff out waste and abuse.

Congressman Sam Graves (R-MO) introduced legislation that would block audits of Medicare providers unless the estimated error rate exceeds 40 percent of total billing. Think about that—almost one half of all bills to Medicare would have fraudulent before auditors could even begin to do their job.

What Can You Do?

If you see instances of Medicare overpayment in your hospital, consider becoming a whistleblower. If the government is going to cave to hospital industry lobbying efforts and not allow auditors to do their jobs—returning stolen funds back to taxpayers—the next best weapon at combating fraud is from whistleblowers.

By becoming a health care fraud whistleblower, you are helping to preserve the integrity of Medicare and saving people’s hard-earned tax dollars. That includes yours. It could also mean a reward for you. A whistleblower is typically eligible to receive a whistleblower reward of between 15 and 25 percent of any monies recovered by the government in a health care fraud case.

Medicare is a $600 billion per year program…can we really afford to see a significant portion of that total end up in the pockets of criminals?

Have first-hand knowledge of fraud in your hospital? Contact an experienced whistleblower law firm today to discuss your options.

Why U.S. Health Care Is So Expensive (and What You Can Do About It)

If you live in the United States and you don’t live under a rock, you know that the cost of health care in this country is expensive—very expensive. Health care in the U.S. costs roughly twice as much as it does in the rest of the developed world. Some perspective: if our country’s $3 trillion health care industry was its own country, it would be the world’s fifth-largest economy.

And for those of you thinking, ‘I have health insurance so someone else is paying these high costs,’ you’re wrong. Health care costs that are so high means we are all paying too much for health insurance.

iStock_000001746475_Large2Health care coverage comes down to pooling risk, which is a good thing on one hand because it protects us against the unexpected very high costs that can come with getting sick or injured. The downside to pooling risk when health care costs are expensive, however, is that insurers are compelled to ask everyone to pay bigger premiums to cover these high costs.

Our Healthcare System is Expensive Because it’s the Best in the World…Right?

Wrong. The care that we spend so much may not be as good as you think.

In 2000, the World Health Organization (WHO) issued a now infamous report ranking the world’s best health care systems. The U.S. did come in first in something—first in overall health care expenditure, per capita. Our health care system came in 15th in overall performance, even though we spend the most. Shockingly, America’s overall ranking was 37th, behind countries like Costa Rica, Chile, Finland, Morocco, Singapore, Oman, etc.

A 2013 Commonwealth Fund study looked at the health care systems of 11 developed countries. In that study, the U.S. came in fifth in overall quality and was at the bottom of the list for infant mortality. Our country was also the worst at preventing deaths stemming from treatable conditions, including certain treatable cancers, diabetes, strokes and high blood pressure.

The Cost of Prescription Drugs

One of the biggest contributors to the expensive prices we pay for health care comes from pharmaceutical companies. In the U.S., we leave drug pricing up to market competition, and as a result pay higher prices for drugs than other countries where medicine costs are either directly or indirectly controlled by governments.

Our country is by far the most profitable market for drug makers (a dubious distinction). According to Express Scripts, the largest manager of drug plans in the U.S., prices for the top brand-name drugs in this country jumped 127 percent between 2008 and 2014. During the same period, the costs of common household goods only increased 11 percent. It demonstrates that despite the outrage from the Turing Pharmaceuticals debacle, huge price increases are not an isolated incident. Unfortunately, pharmaceutical drug price gouging is actually quite commonplace in America.

(NOTE: This is not to say that Turing and it’s boss Martin Shkrelli are without fault; quite the opposite. Shkrelli is absolutely deserving of the title given to him by the Daily Beast as the “most-hated man in America,” even surpassing the dentist who killed Cecil the Lion)

Reuters came out with an analysis this week looking at the prices of 20 of the world’s best-selling medicines. Conducted by researchers from Britain’s University of Liverpool, the study found that, on average, the world’s best selling medications are three-times more expensive in the U.S. than they are in the United Kingdom. The study also found that U.S. prices were consistently more expensive than in other European markets.

U.S. drug prices were found to be six-times higher than Brazil and 16-times higher than the lowest-price country, which was frequently India.

While the Reuters review is thorough and provides valuable data, it asks more questions than it answers. Why are health care costs so high? Simple: we have a political system dependent on pharmaceutical company campaign contributions, and we have law firms, lobbyists, and print and broadcast journalists dependent on pharmaceutical company clients and advertising.

If you drop enough money, the simplest questions become very complex, requiring decades of debate and study. Rather than address the problem, we get paralysis by analysis, and the whole problem is compounded by a weak regulatory structure and an underfunded U.S. Department of Justice.

What Can be Done to Make Health Care Less Expensive?

See something wrong? Report it – Health care fraud costs our country tens of billions of dollars on an annual basis and puts patient health in jeopardy. On a national level, fraud results in higher insurance premiums for all of us while also compromising the quality of care we receive. Recent cases show that greedy medical professionals are frequently willing to risk patient harm in furtherance of making money via fraud schemes.

So if you suspect that health care fraud being committed, please consider reporting it to a whistleblower attorney who can help you file a claim. It can have a domino effect of saving taxpayer money, cutting health care costs and improving the quality of care we all receive. You may also be eligible for a reward.

Find out what your actual cost of care is – Many insurance companies will disclose at least some negotiated prices to those on their rolls. If your health insurance plan offers this information (especially for things you can plan in advance like imaging tests), take advantage of this benefit. A real world example: people who were scheduled for CT scans or MRIs were called and told about cheaper alternatives of equal quality. Just by questioning the costs associated with their care, these people ended up saving hundreds per scan. More importantly, the move toward cheaper alternatives forced the more expensive providers to reduce their prices.

Look for a smaller insurance network – According to Consumer Reports, signing up with an insurance plan that has fewer providers can save you about 20 percent on premiums. This is because providers give the insurance company price breaks in exchange for fewer competitors. Before you sign up for this type of network, however, make sure that the plan includes all of the doctors, hospitals, labs, etc. that you require, and that all are within a reasonable distance from your residence. Also be sure to ask if they will accept new patients.

Whistleblower News This Week: PharMerica Resolves Kickbacks Claims

PharMerica Corp., the second-largest nursing home in the United States has agreed to pay the government $9.25 million to resolve claims that the company solicited and received kickbacks from a major drug company in exchange for promoting a prescription drug to nursing home patients.

PharMerica, headquartered in Louisville, Kentucky, is accused of accepting the kickbacks from Abbott Laboratories in exchange for promoting Depakote, an Abbott drug used to treat epileptic seizures, manic or mixed episodes associated with bipolar disorder (manic-depressive disorder) and to prevent migraine headaches.

PharMerica In May of 2012, the Justice Department announced a settlement agreement with Abbott for an astounding $1.5 billion, resolving global civil and criminal allegations that the drug maker violated the False Claims Act by handing out kickbacks to nursing home pharmacies like PharMerica. Today’s settlement agreement resolves allegations over PharMerica’s role in accepting kickbacks.

Nursing homes rely on consultant pharmacists—like those employed at PharMerica—to review patient medical charts at least monthly so recommendations can be made to doctors about the drugs patients are taking. According to the Justice Department, PharMerica solicited and received kickbacks from Abbott in exchange for the pharmacy company’s recommendation that doctors at nursing homes prescribe Depakote to their patients.

The government claims that the alleged kickbacks were disguised as educational grants, rebates and other forms of financial compensation. This is an oft-used tactic by fraudsters attempting to cover their tracks disguising the true intent of these ‘financial transactions’ (which basically amounts to bribes).

Today’s settlement resolves whistleblower allegations from two lawsuits filed in the Western District of Virginia by former Abbott employees Richard Spetter and Meredith McCoyd. Both filed qui tam lawsuits, which allow private citizens to sue on behalf of the government for false claims. The whistleblower, or whistleblowers, and the government share in any recovery.

The amount of money a whistleblower receives as a reward varies and is usually based on a number of factors, such as the contribution of the relator to the investigation and the government’s involvement. For example, if the government decides to intervene in a case, the reward will normally be  between 15 and 25 percent. If the government does not intervene in the case and the whistleblower and his or her whistleblower attorney is forced to handle the case independently, the reward could be as high as 30 percent of any recovered sum.

In the PharMerica case, the government intervened. As part of the resolution, Meredith McCoyd will receive approximately $1 million for filing the whistleblower lawsuit.

According to a Justice Department press release, roughly $6.75 million of the settlement will go to the U.S. government and approximately $2.5 million will be allocated to cover Medicaid program claims in states that decide to participate in the settlement (Medicaid is jointly funded by the federal and state governments). New Hampshire Attorney General Joseph Foster has said his state will receive roughly $160,000 from the multistate settlement.

Why is the PharMerica Whistleblower Lawsuit Important?

As you’ve frequently seen on this blog, these cases of kickbacks and health care fraud unfortunately happen all too frequently. A couple of things set this one apart from some of the others that get the attention from the news media:

For starters, elderly patients in nursing homes who suffer from dementia don’t have a lot of control over the drugs they are given. It is for this reason that they deserve (and depend on) unbiased judgment from the healthcare professionals that are treating them on a daily basis.

When financial incentives are presented to doctors treating our most vulnerable citizens, it muddies the waters, and that is putting it gently. They are no longer thinking about what is in the best interest of the patient, but instead what kind of money they can make by prescribing a drug.

It goes without saying that anytime a medical professional’s judgment is clouded by money instead of a patient’s health and wellbeing it is terrible. But there is something way more unnerving about kickbacks and bribes clouding the judgment of doctors in nursing homes. Our most vulnerable elders deserve far better.

The only way this kind of fraud is going to stop is if more whistleblowers come forward and expose those seeking to bilk money from the government at the expense of elderly folks trying to live out their last days in peace. We need more people like Richard Spetter and Meredith McCoyd to stand up and say this kind of behavior isn’t going to happen on my watch.

Another reason that this case is so important is that Abbott Laboratories is a repeat offender—the company has paid doctors a number of times and been caught, and yet it still continues to pay kickbacks (how many big pharma companies can say they’ve paid out over $1.5 billion in civil and criminal allegations?).

July 2015: Omnicare and the government laid out a plan to settle claims that Omnicare accepted millions of dollars in kickbacks from Abbott Laboratories in an effort to have company doctors prescribe Depakote (yes, the same Depakote named in the PharMerica case). Covington, Kentucky-based Omnicare is the country’s largest supplier of pharmaceutical drugs to nursing homes.

Omnicare accepted the kickbacks, which were handed out with the expectation that Omnicare doctors would buy and recommend Depakote to treat behavioral disturbances in dementia patients, an indication for which the drug isn’t approved by the Food and Drug Administration. The kickbacks were hidden to appear as grants or educational funding (sound familiar?). Omnicare also accepted tickets to sporting events and let Abbott pay for lavish meetings in Florida.

December, 2013: Abbott agreed to pay the government $5.475 million to resolve claims that it violated the FCA by paying kickbacks in an effort to get doctors to implant the company’s carotid, biliary and peripheral vascular products.

Carotid products treat circulatory disorders by increasing blood flow to the head. Vascular products are also treat circulatory disorders but for parts of the body. Biliary products treat obstructions that occur in bile ducts.

The allegations, made by two whistleblowers, claim Abbott knowingly paid prominent doctors kickbacks in the form of speaking engagements, teaching assignments and vacation conferences in an effort to get the doctors to convince the hospitals they worked in to purchase Abbott products.

One last thing: this case is also a reminder that companies accepting kickbacks are as guilty as those making the illegal payments.

If you have firsthand knowledge of kickbacks being paid and received in an effort to influence care, it is in your best interest to contact an experienced whistleblower attorney to discuss your case. Speaking up about this fraudulent conduct helps protect the integrity of government health care programs and could result in a whistleblower reward for you.

If you’d like more information on becoming a whistleblower, contact the law firm of Baum, Hedlund, Aristei & Goldman today.

Strata Resolves Whistleblower Lawsuit, Hundreds of Hospitals Involved in Fraud Case

Two interesting and important health care fraud news stories this week…

implantable cardioverter defibrillators On Monday, it was reported that hundreds of hospitals throughout the country have reached a settlement agreement with the Justice Department regarding a lengthy, nationwide investigation into the alleged overuse of implantable cardioverter defibrillators (known as ICDs).

Little information on the case has been made public, presumably because there are still details for both sides to come together on, but based on the number of those named in the allegations, this could go down as one of the largest health care fraud settlements the nation has ever seen. At this point, no one has speculated on the amount of money that will be returned to the government, but Modern Healthcare is reporting that the amount is likely to be very large.

The speculation on the recovery amount is based on regulatory filings that several health systems have made in recent months. For example, HCA said in an August filing with the Securities and Exchanges Commission (SEC) that it had agreed to pay the government nearly $16 million. Also in August, Tenet Healthcare Corporation said it would pay just over $12 million in an SEC filing.

Other companies like Catholic Health Initiatives, Iasis Healthcare, St. Joseph Health and MedCath Corporation (chain of heart hospitals that have since gone out of business) have also entered SEC filings stating an intent to pay the government. Not one of the companies admitted to any wrongdoing as part of their settlement agreements.

ICD’s cost around $25,000 to $40,000 each, and are wired to the heart in order to deliver an electric shock if the device detects any abnormal rhythm. Medicare changed its rules in January of 2005 and began allowing implantable cardiac devices for primary prevention of arrhythmia. The only catch is that ICD’s cannot be implanted within 40 days of a heart attack or within 90 days of angioplasty or bypass surgery. Regardless of the rules, more and more doctors still chose to implant the devices under these circumstances anyway. With so much money changing hands and the health issues involved in each ICD procedure, the Justice Department felt it needed to investigate. The ICD investigation started about four years ago.

Why is this investigation important?

–    Since the Justice Department began investigating these allegations, hospitals nationwide have essentially been put on notice about Medicare’s national coverage for ICD’s, which has resulted in a decrease in the number of the devices implanted in recent years.

–    This case has interesting implications for future health care fraud claims. This landmark case involving hundreds of hospitals represents what is likely the largest investigation of its kind with the goal of holding each hospital accountable for the medical decisions made by physicians. The government believes that when hospitals bill for services performed by physicians on site, it is the responsibility of the hospitals to make sure that the service, treatment, procedure or device is in compliance with Medicare’s regulations. If hospitals fail to perform due diligence and make sure they are in compliance, they are exposed to liability under the False Claims Act.

–    Lastly, this case highlights the importance of data analysis as a tool for bringing False Claims Act cases. By looking for aberrations in hospital billing, the government can identify and investigate likely fraud.

Strata Pathology Reaches Agreement to Resolve Kickback Allegations 

In other health care fraud news this week, Lexington, Massachusetts-based Strata Pathology Laboratory, Inc. has agreed to pay $558,793 to resolve whistleblower allegations that it paid kickbacks to doctors in order to entice patient referrals. The settlement resolves a whistleblower complaint initially filed by an unidentified former Strata employee. Strata is described on its website as a leading anatomic pathology laboratory providing patients, physicians and hospitals with diagnostic services.

Capture4According to the U.S. Attorney’s Office for the District of Massachusetts, Strata paid a number of doctors kickbacks in the form of sham consulting fees and provided unlawful discounts to doctors as a means to earn Medicare and Medicaid patient referrals. The pathology lab acknowledged that it paid consulting fees to two referring physician practices even though the physicians never actually provided consulting services.

The company further acknowledged that it entered into “account billing” arrangements with seven referring physician practices that facilitated fee-splitting between the parties. Under these arrangements, the whistleblower complaint claims that Strata allowed these physician practices to bill patients’ private insurers directly for pathology services actually performed by Strata. The pathology lab then charged the practices for its services at deeply discounted rates, which allowed the physician practices to profit the difference between the discounted price Strata offered and the full reimbursement amount from patients’ private insurance companies. The allegations further state that all of the physician practices referred Medicare and Medicaid beneficiaries to Strata, which then billed those programs at full price.

The whistleblower lawsuit claimed that Strata submitted false claims for reimbursement from Medicare and Medicaid because the claims were based on kickbacks that Strata provided referring physicians. The Anti-Kickback Statute prohibits offering, paying, soliciting, or receiving remuneration to induce referrals of services or items covered by government health care programs like Medicare or Medicaid.

Strata’s account billing arrangements with physician practices didn’t explicitly condition discounted prices upon patient referrals, but the U.S. claims that the pathology lab offered the discounts based on the understanding that these practices who chose to enter into account billing arrangements with Strata would refer virtually all of their patients.

The settlement will be shared between the U.S., the unidentified whistleblower and the state of Massachusetts.

This case and the resulting settlement show how a whistleblower can protect the integrity of federal and state health care programs. When laboratories, hospitals or other health care companies offer kickbacks to referring doctors, the integrity of the system is corrupted. In such cases, Physicians may have their health care decisions influenced by the money to be made, rather than the health care needs of their patients.

The whistleblower law firm of Baum, Hedlund, Aristei & Goldman applauds the government’s efforts in both of these cases, as well as those of the whistleblowers. We need more people to come forward and expose wrongdoing whenever possible to protect the integrity of Medicare and Medicaid, stop rising health care costs, and maintain quality of care based on patient need rather than financial reward.

If you have firsthand information of health care fraud, consider speaking with an experienced whistleblower attorney, who can walk you through your options. For more information on becoming a whistleblower, contact us anytime.

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If I Decide to Become a Whistleblower, Will I be Protected From Retaliation?

Whistleblowers in Action

Whistleblower News: Health Care Fraud and Defense Contractor Fraud Cases Settle

As we’ve seen countless times in this whistleblower blog, fraud schemes come in many different shapes and sizes. Some involve a number of co-conspirators while others are the handiwork of just one person putting greed ahead of all else. But no matter how many moving parts there are, they all have the same intent: to steal money from the American tax payer for personal gain.

In recent days, we have seen two different fraud cases come to a close. The first news story reported this week involved defense company employees who allegedly set up an illegal bid-rigging scheme designed to falsely bill the U.S government for supplies intended for the Afghan National Army. The other case involved a Florida hospital district that was allegedly engaged in improper financial relationships with referring physicians.

PAE Government Services, Inc. and R.M. Asia Ltd. Settle Whistleblower Lawsuit for $1.45 Million

Last Friday, PAE Government Services, Inc. and R.M. Asia Ltd. agreed to settle a whistleblower lawsuit for $1.45 million. Defense contractor PAE offers support in aviation, capacity building and stabilization, critical infrastructure, expeditionary logistics, identity and information management solutions, integrated security solutions, test and training ranges, and training solutions, mostly to U.S. government customers. R.M. Asia Ltd. is a Hong Kong company that wholesales and distributes industrial vehicles and parts.

PAE_logoWhistleblower Steven Walker, a former project manager who worked for defense contractor PAE in Afghanistan, filed a claim against his former employer after learning about the alleged scheme, which involved company employees creating fictitious entities in order to fraudulently bill the U.S. for supplies that were supposed to be given to the Afghan Army.

In 2007, the U.S. Army awarded a defense contract to PAE, which required the company to provide the Afghan Army with an apprenticeship program, vehicle-fleet maintenance, as well as order vehicle parts and perform supply-chain management. According to the whistleblower lawsuit, defense contractor PAE turned around and awarded a subcontract to R.M. Asia Ltd. to perform the supply-chain management and provide warehousing services for vehicle parts.

Walker claims in his whistleblower lawsuit that between 2007 and 2010, PAE and R.M. Asia Ltd. both submitted false claims due to a bid-rigging scheme designed to steer subcontracts to companies owned by a PAE manager and an R.M. Asia manager. The whistleblower complaint also claimed that PAE and R.M. Asia knew or should have known about the alleged fraud and didn’t to take any action to stop or report it.

Walker’s whistleblower allegations of bid-rigging kickstarted a lengthy criminal investigation against the defendants named in the case, which resulted in guilty pleas, convictions and prison sentences for those involved. But Walker’s own investigative pluck is what really led to Monday’s settlement.

According to a Justice Department press release, defense contractor PAE initially hired Walker as a training manager. He quickly moved up the ranks to program manager while in Afghanistan. Walker, who was an engineering and diesel mechanics professor at Oklahoma State University before taking the PAE job, learned of the alleged fraud while in Afghanistan. He ended up traveling throughout some of the country’s most dangerous areas without military escorts to inspect warehouses to confirm his suspicions. When he eventually returned to the U.S., he drove from his home in Oklahoma all the way to Nashville, Tennessee to inspect marriage records to be sure of the suspected family ties that would eventually make their way into his whistleblower lawsuit.

In the related criminal investigation, the U.S. Attorney’s Office of the Eastern District of Virginia obtained guilty pleas from former PAE program manager Keith Johnson and his wife, Angela Gregory Johnson, along with RM Asia’s former project manager, John Eisner, and deputy project manager, Jerry Kieffer, for their participation in the scheme.

For his role in exposing the alleged defense contractor fraud, Walker will receive a whistleblower reward of $261,000. Defense contractor whistleblowers like Steven Walker who go the extra mile to protect the integrity of government resources should be applauded. It is very likely that if he hadn’t stood up and exposed the alleged fraud, the wrongdoers would never have been brought to justice, nor would the stolen funds have been returned.

The lawsuit is captioned U.S. ex rel. Walker v. PAE, et al., 1:11CV382-LO/TCB (E.D. Va.). The claims that were resolved in this settlement are allegations only; there has not been any determination of liability.

Florida Hospital District to Settle Health Care Fraud Allegations for $69.5 Million

The North Broward Hospital District has agreed to pay the U.S. $69.5 Million to settle whistleblower claims that it had improper financial relationships with referring physicians.

The North Broward Hospital District (NBHD) is a special taxing district of the state of Florida that operates hospitals and other health care facilities in the Broward County area.

BH_StackedThe whistleblower who initially came forward with allegations in this case, Dr. Michael Reilly, claims that the NBHD paid nine employed doctors in excess of the fair market value for their services. These payments, the lawsuit contends, were in effect kickbacks. Rather than being paid for providing quality care, the doctors in question were paid as a reward for the referral of business to the NBHD.

These payments, according to the Justice Department, violated the Stark Statute and the False Claims Act. The Stark Statute restricts financial relationships that health care providers may have with doctors who refer patients to them. The Justice Department has long been concerned about improper financial relationships between health care providers and their referral sources. These relationships, which are predicated on money, can alter a doctor’s judgment about the patient’s health care needs and drive up health care costs for us all.

As a reward for bringing this alleged fraud to the government’s attention, Dr. Michael Reilly will receive a whistleblower reward of $12,045,655.51.

The case captioned U.S. ex rel. Reilly v. North Broward Hospital District, et al., Case No. 10-60590 (S.D. Fla.) was handled by the Civil Division’s Commercial Litigation Branch, the U.S. Attorney’s Office of the Southern District of Florida and the U.S. Department of Health and Human Services Office of Inspector General (HHS-OIG). The claims settled by the agreement are allegations only, as there hasn’t been determination of liability.

Filing a Whistleblower Lawsuit

Estimates have indicated that as much as 10% of government health care spending is lost to fraud and abuse. This is why we need brave men and women to come forward and expose fraud and protect the integrity of government programs.

If you have witnessed or have information concerning fraudulent behavior that could be costing the government money, you have the right and duty to become a whistleblower. Whether you are a high ranking official within a company, an employee or even a bystander with information concerning misconduct, filing a whistleblower lawsuit will require the assistance of an experienced whistleblower attorney.

The whistleblower attorneys at Baum, Hedlund, Aristei & Goldman have been dedicated to public safety and public health advocacy for over 20 years. If you are aware of corporate wrongdoing or possible fraud, it is in your best interest to contact a Baum Hedlund whistleblower attorney today to discuss your case and protect your rights.