Whistleblower Law Blog
Topic: Fraud Types
On February 26, 2015, New York Attorney General Eric Schneiderman announced plans to introduce state legislation to protect and reward employees who report information about illegal activity in the banking, insurance, and financial services industries.
Schneiderman’s proposal, titled the Financial Frauds Whistleblower Act, would create a state-level equivalent of the federal Dodd-Frank Wall Street and Consumer Protection Act. The Dodd-Frank Act provides financial incentives and anti-retaliation protections to whistleblowers who report fraud in the financial services industry.
While a number of states have whistleblower programs modeled after the federal False Claims Act, the Financial Frauds Whistleblower Act would be the first state-level equivalent of the Dodd-Frank Act, which created the whistleblower programs at U.S. Securities and Exchange Commission and U.S. Commodity Futures Trading Commission.
Schneiderman’s proposal would also address the limitations on awards imposed by federal law. Under the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA), rewards to whistleblowers who report financial crime are capped at $1.6 million.
The Financial Frauds Whistleblower Act would compensate whistleblowers whose information leads to action by the state’s banking and insurance regulator, the New York Department of Financial Services—providing the potential for large awards.
The legislation has yet to pass the New York State legislature.
In its recent FY 2016 Budget Request, the Securities and Exchange Commission touted the success of its Whistleblower Program and proposed increased funding for the program to help with an increased workload caused by a surge in whistleblower tips. The SEC’s Enforcement Division, in the 2016 Budget Request, revealed that it had received approximately 3,600 tips in FY 2014 through the Whistleblower Program, the largest number of tips ever received by the SEC. The SEC also reported in its request that it had granted the largest number of rewards in its history to whistleblowers in 2014.
Under the SEC’s Whistleblower Program, a whistleblower may receive a reward of between 10 and 30 percent of penalties collected by the SEC if the whistleblower provides information leading to a penalty of $1,000,000 or more. In fact, in September 2014, the SEC announced a reward of more than $30 million to a whistleblower.
The Budget Request praises the effectiveness of the program, stating, “Whistleblowers can often provide high-quality information that allows the Division to more quickly and efficiently detect and investigate alleged violations of the law.” The Request predicts that the surge in rewards, including the September 2014 reward of more than $30 million, will spur more tips and ultimately allow the Enforcement Division to “bring enforcement actions against violators where it would otherwise have not had sufficient information to do so.” The SEC proposes increased funding to hire more staff to handle the increased workload.
The Request demonstrates the success of the Program in protecting investors by ensuring a fair marketplace. It also shows the tangible impact that encouraging whistleblower activity has had in advancing the SEC’s mission. Finally, the Request’s proposal for additional funding, if approved, will allow the SEC’s Whistleblower Program to investigate more tips and prosecute wrongdoing more quickly and efficiently, and to reward more whistleblowers for providing important information to the government.
On February 5, 2015, Maryland proposed a new, expanded state False Claims Act that would better allow Maryland to deter and recover damages for fraud against the state. Maryland Attorney General Brian Frosh urged adoption of the Act, which would expand Maryland’s current limited version that only applies to Medicaid and health-care related fraud.
Under the proposed False Claims Act, Maryland may receive triple the damages for its losses, while the whistleblower who initiates the claim is allowed to receive a portion of the state’s recovery and is also protected against retaliation in the work place. The state’s current version of the Act has allowed it to recover $28 million a year in each of the past two years from Medicaid-related cases alone. Adopting the proposed expansion will allow Maryland to achieve greater success in deterring fraud and recovering funds, much like the federal government.
Under the federal False Claims Act, the federal government recouped nearly $5 billion in 2012. To incentivize states to adopt laws more closely mirroring the federal False Claims Act, the federal government, under the Deficit Reduction Act of 2005, allows states to collect an additional 10% of federal Medicaid funds recovered through a state action.
CareAll Management, a home healthcare provider based in Nashville, Tennessee, recently agreed to pay $25 million to settle charges that it violated the False Claims Act by submitting false and “upcoded” billings to Medicare and Medicaid. The settlement resolves a suit filed in the U.S. District Court for the Middle District of Tennessee. The suit alleged that CareAll overstated the severity of patients’ conditions to increase billings (upcoding) and billed for services that were not medically necessary and were rendered to patients who were not homebound. CareAll is one of the largest home healthcare providers in Tennessee.
As part of the settlement, the relator, Toney Gonzales, will receive more than $3.9 million as his share of the total recovery. Gonzales brought the lawsuit against CareAll under the qui tam provisions of the False Claims Act, which allows private citizens to sue on behalf of the United States for fraudulent uses of federal funds (including Medicare and Medicaid) and to share in any recovery.
The CareAll settlement illustrates efforts by the Department of Justice (DOJ) to make home healthcare fraud a bigger enforcement priority. In many cases, the government is criminally prosecuting the individuals responsible for the fraud in addition to the corporate entity. In the same week that it announced the CareAll settlement, DOJ reached multi-million dollar settlements involving three other home healthcare fraud schemes. These settlements mark the success of the Health Care Fraud Prevention and Enforcement Action Team (HEAT) initiative, a partnership between the Attorney General and the Secretary of Health and Human Services to increase efforts to prevent Medicare and Medicaid fraud.
On December 17, 2014, the Court of Appeals for the Eighth Circuit affirmed a lower court ruling ordering Bayer Corporation to reinstate a former pharmaceuticals sales representative, Mike Townsend, wrongfully terminated by Bayer in violation of the anti-retaliation provisions of the False Claims Act (FCA), 31 U.S.C. § 3730(h). Bayer had opposed the court-ordered relief, arguing that reinstating Townsend constituted an abuse of discretion by the lower court because Bayer had planned to eliminate Townsend’s position in a reorganization and the FCA did not permit reinstatement in those circumstances.
In April 2009, Townsend disclosed to his manager that a Bayer customer, Dr. Kelly Shrum, was committing Medicare fraud by buying a cheaper Canadian version of a contraceptive device and submitting reimbursement claims for the more expensive FDA-approved contraceptive. Townsend eventually reported Shrum to the Arkansas attorney general.
On May 5, 2010, Bayer fired Townsend, claiming he couldn’t do his job because his credit card had been deactivated. At trial, Bayer argued that the deactivated card prevented Townsend from entertaining physicians. The jury rejected Bayer’s stated reason for terminating Townsend as pretextual and found Bayer fired Townsend in retaliation for reporting Shrum’s Medicare fraud.
Judge James M. Moody of the District Court for the Eastern District of Arkansas ordered Bayer to reinstate Townsend. The Eighth Circuit affirmed reinstatement as an appropriate remedy for the retaliatory firing, given that Townsend had no performance issues, enjoyed working at Bayer, and there was no evidence that Townsend’s coworkers would harass him upon his return. The Court rejected Bayer’s planned reduction in force as an affirmative defense to bar Townsend’s reinstatement. The Court held that Bayer did not have to reinstate Townsend to the exact same position, but, at a minimum, had to put him in a position with “the same seniority status” he would have had but for Bayer’s unlawful conduct.
Federal District Court Refuses To Dismiss Case Based on the Public Disclosure Bar When the Government Has Opposed Dismissal On that Basis
In United States ex rel. Karin Berntsen v. Prime Healthcare Services, Inc. et al., the U.S. District Court for the Central District of California denied Prime Healthcare’s motion to dismiss, ruling that a False Claims Act qui tam action cannot be dismissed under the “public disclosure bar” if the Government has opposed dismissal on that basis.
The False Claims Act prevents a private party from bring a qui tam action where the alleged fraud is already publicly known (this is often referred to as the public disclosure bar). In this case, Karin Berntsen, the relator, alleged that she was the original source of the information underlying her qui tam complaint and that she made these disclosures to the government before filing her lawsuit. But Prime Healthcare and the other defendants moved to dismiss, in part, because they claimed that Berntsen was not the original source. In support of their motion, they identified a number of publicly-available reports and articles regarding their allegedly fraudulent practices.
The relator argued that because the Government opposed the dismissal of the complaint on the basis of the public disclosure bar, the district court was barred from dismissing the complaint on that basis. The court agreed with the relator. The court also acknowledged a lack of legal authority on the issue and reviewed Congress’s intent in creating the public disclosure bar: to strike a balance between encouraging private persons to root out fraud and stifling parasitic lawsuits. Since the Government, through its opposition to the dismissal, had indicated that it supported the relator’s qui tam action, the court found that it would be “illogical” for it to conclude that the relator’s action was parasitic, and thus allowed the relator’s qui tam action to proceed.
Whistleblower Receives $1.2 Million in $6 Million Settlement of Qui Tam Action Against Caremark For Failing to Reimburse Medicaid for Drug Costs Covered by Both Medicaid and a Private Health Plan
The Department of Justice announced that Caremark, a pharmacy benefit management (PMB) company, will pay $6 million to settle allegations that it violated the False Claims Act; and the former Caremark employee who blew the whistle on the violations will receive $1.2 million from the settlement. Caremark allegedly knowingly failed to reimburse Medicaid for the cost of drugs for beneficiaries who were covered by both Medicaid and a private health plan. These patients are referred to as “dual eligible” and their private insurer or PMB must assume the cost of the prescription drugs rather than submit claims to Medicaid.
If Medicaid pays for the drugs when a private insurer or PMB should have assumed the cost, the private insurer or PMB must reimburse Medicaid. Caremark caused Medicaid to pay the drug costs when Caremark should have paid.
The Financial Industry Regulatory Authority — a self-policing arm of the securities industry — reminded its member firms not to ask their employees to sign confidentiality agreements that forbid reporting possible wrongdoing to FINRA itself, or to industry regulators such as the U.S. Securities and Exchange Commission.
FINRA may discipline firms that add such provisions to agreements with their employees, it said in a new regulatory notice. FINRA also said that any language that bars employees from sharing certain documents outside their firm can’t stop employees from giving the same documents to regulators.
Just weeks before a planned trial, Michigan oncologist Farid Fata pleaded guilty to 16 of 23 criminal counts, including charges of giving chemotherapy to healthy patients in order to get Medicare payments.
The U.S. Department of Justice (DOJ) said it obtained a $1.3 million settlement of allegations that a cardiology practice violated the False Claims Act and the Stark Act by knowingly compensating its physicians based on the number of tests that the physicians referred.
The Stark Act prohibits a physician from referring Medicare patients for designated health services to an entity with which the physician has a financial relationship (unless an exception applies). The Stark Act does not permit a practice to compensate a physician based directly on the volume or value of the physician’s referrals for services not personally performed by the ordering physician.