Whistleblower Attorneys Blog

Federal District Court Reaffirms Broad Reading of Public Disclosure Bar

July 23, 2012 | Greene LLP

In an opinion released on July 12th in United States ex rel. Osheroff v. Tenet Healthcare Corporation, the United States Federal Court for the Southern District of Florida rejected an argument that facts and information disclosed online constitute a “public disclosure” for the purposes of the False Claims Act (“FCA”).

The False Claims Act is a federal whistleblower statute that allows private whistleblowers (known as “relators”) to sue on behalf of the government for false claims submitted to the government in connection with payment. In many cases, a claim is false because submission of the claim impliedly certifies compliance with other federal laws; therefore, a claim submitted by an individual or corporation that is not in compliance with other federal laws can be a false claim resulting in FCA liability. In the Osheroff case, a relator alleged that Tenet Healthcare Corporation and related companies leased offices to referring physicians at below-market rates in violation of the federal Anti-Kickback Statute (AKS) and the Stark Law. Thus, Medicare and Medicaid claims submitted by Tenet for services rendered to patients referred by said physicians would be false claims in violation of the FCA.

Tenet argued in its motion to dismiss that because the relator’s complaint was based upon online real estate information initially disclosed by the news media, the claim was barred by the statute’s public disclosure bar. The court was unpersuaded by this argument, reaffirming that the plain language of the public disclosure bar does not preclude the claim. The relevant language of the statute precludes “an action based upon the public disclosure of allegations or transactions…” Thus, public disclosure of mere information does not bar a complaint under the FCA. As the court observes: “Relator’s action is based upon an alleged fraud that was first discerned through Relator’s synthesis and analysis of otherwise apparently innocuous, garden-variety real estate/financial information…”

Sixth Circuit Upholds $1 Million Jury Verdict on FCA Retaliation Claim

July 18, 2012 | Greene LLP

On June 22nd, the United States Court of Appeals for the Sixth Circuit affirmed the decision of a federal district court to deny motions to direct a verdict or, alternatively, order a new trial. The trial court awarded damages for a retaliation claim filed under the False Claims Act (“FCA”).

In November of 2004, Mark Thompson, a former CEO at Monroe County Medical Center (MCMC), a health care facility managed by Quorum Health Resources, LLC, filed a lawsuit in which he alleged that Quorum had defrauded the federal government’s Medicare program by unnecessarily driving up costs by improperly selecting hospital vendors and group purchasing organizations (GPOs). According to Thompson, about a month after learning of the FCA complaint, Quorum terminated Thompson’s employment. Thompson then amended his initial complaint to allege retaliation. Quorum’s stated reason for firing Thompson was failure to comply with the company’s code of conduct by reporting the concerns of fraud when they initially arose. Thompson argued, meanwhile, that Quorum’s stated reason for the termination was mere pretext for an improper retaliation on the basis of protected conduct, namely, filing a claim under the FCA. After a jury verdict in Thompson’s favor on the count of retaliation, the court awarded damages of nearly $1 million. Quorum made a motion for a judgment as a matter of law and, alternatively, for a new trial. Both motions were denied.

On appeal, Quorum argued that the district court erred by admitting testimony about the allegations of fraud contained in Thompson’s initial complaint but disallowing testimony that the government failed to intervene. The Sixth Circuit held, in an unpublished opinion, that the testimony concerning the fraud was relevant because Thompson needed to show that Quorum was committing such fraud and failed to conduct a sufficiently thorough investigation. Such evidence was relevant to rebut Quorum’s assertion that Thompson failed to comply with the company’s code of conduct. The Cincinnati-based federal appeals court thus affirmed the district court’s denial of the motions.

LIBOR Rate-Rigging Scandal May Have False Claims Act Implications

July 17, 2012 | Greene LLP

After Barclay’s agreed to pay a $450 million criminal fine following an investigatory probe conducted by the Department of Justice, regulators in countries all over the world continue to evaluate the full scope and impact of the LIBOR (London Interbank Offered Rate) rate manipulation scandal. Barclay’s admitted to manipulating the short-term interest rate it was able to secure for overnight loans; the average of banks’ self-reported overnight rates is used to calculate the LIBOR rate. The United States Department of Justice, the Commodities Future Trading Commission, and other regulatory agencies worldwide have portended the possibility of criminal prosecutions implicating, at a minimum, ten large banks. The LIBOR benchmark affects borrowing costs for trillions of dollars’ worth of financial instruments, including mortgages, credit cards, and student loans.

Dozens of cities, states, and other government entities are already exploring whether they suffered losses as a result of the alleged rate manipulation. Practices which affected the LIBOR by even fractions of one percent, experts estimate, could impact investors to the tune of tens of millions of dollars. The City of Baltimore has filed a lawsuit, which has been consolidated with those of dozens of others, alleging losses from the banking fraud; entities suing include pension funds, mutual funds, and municipalities.

While the scale and nature of the losses as a result of the LIBOR scandal are as of yet not possible to fully fathom, the potential impact on mortgage rates and other financial instruments could lead to qui tam suits under the False Claims Act (“FCA”), a whistleblower statute that allows whistleblowers a private cause of action against entities that have defrauded the government. If depository institutions misrepresented the interest rates on loans insured by the Federal Housing Administration (FHA), there could be potential liability under the FCA.

Fourth Circuit Court of Appeals: Government Corps. May Be Subject to FCA Liability

July 17, 2012 | Greene LLP

Increased attention in recent years on fraud and abuse in the arenas of lending and finance has led to a burgeoning wave of litigation and recoveries under the federal False Claims Act (“FCA”). In its recent opinion handed down on June 18th, 2012, United States ex rel. Oberg v. Kentucky Higher Educ. Student Loan Corp., the United States Court of Appeals for the Fourth Circuit joined the Ninth, Fifth, and Tenth Circuits in an opinion that may have important implications for whistleblowers seeking to file claims under the Act.

Although the False Claims Act contains two procedural hurdles, a first-to-file bar and a public disclosure bar, a host of amendments to the FCA have served to increase whistleblowers’ access to the courts and to facilitate the successful prosecution of more cases. Under the qui tam provisions of the FCA, private whistleblowers (known as relators) may sue on behalf of the government for fraud. The Fourth Circuit opinion in Oberg, however, addressed an even more fundamental question: what constitutes a “person” subject to suit for the purposes of the FCA? States are immune from liability under the statute, but courts have been asked to decide the question of whether or not certain government-owned corporations are subject to sufficient government control to be considered entities immune from suit. In the Oberg case, the qui tam suit was brought by Dr. Jon H. Oberg, a former researcher with the U.S. Department of Education who alleged that several student lenders submitted fraudulent claims to the federal government, resulting in $1 billion in excess subsidies. The defendants, who according to the Fourth Circuit opinion are “corporate entities created by their respective states to improve the availability of higher educational opportunities by financing, making, and/or guaranteeing student loans,” claimed immunity from suit as “state agencies.” Oberg, on the other hand, argued that any corporation, state-affiliated or not, is a “person” subject to suit under the FCA.

The Fourth Circuit reversed the finding of a federal district court in favor of the defendants, holding that the lower court must engage in an “arm of the state” analysis under the Eleventh Amendment (which has been interpreted to grant sovereign immunity to the states). Such an analysis would consider several factors, including whether any judgment against the entity would be paid by the state, the degree of autonomy exercised by the entity, whether the entity is involved with state concerns as opposed to non-state or local concerns, and how the entity is treated under state law. After Oberg, the Fourth Circuit joins a growing consensus among circuit courts that entities with only highly attenuated links to state or federal government may not raise the shield of immunity as a defense to liability under the FCA.

Whistleblower Alleges Billions in Medicare Part D Fraud

July 13, 2012 | Greene LLP

An audit of the claims processing practices of Caremark, a company that merged with CVS to form CVS Caremark in 2007, has led to a whistleblower complaint under the False Claims Act (FCA) alleging potentially billions of dollars in fraud under the Medicare Part D program.

The complaint was filed by Anthony Spay, a former pharmacist whose company, Pharm/DUR, was hired by the Puerto Rico-based health insurance company Medical Card System (MCS) to audit Part D prescription claims processed by Caremark, an MCS subcontractor. According to the complaint, Caremark’s complicated corporate structure enabled it to play at least two roles in the Part D program at once, both as a sponsor and pharmacy benefit manager (PBM). PBMs determine whether or not a particular drug is covered under the plan and whether or not the beneficiary is eligible for the prescription benefits for pharmacies at each point of sale; as a Part D sponsor, the company had a strong economic incentive to approve claims in order to receive reimbursement for administrative fees, dispensing fees, and pharmacy charges that would only be collected if claims were approved. Spay’s audit revealed that Caremark dispensed gender-specific drugs to patients of the opposite gender, failed to apply “maximum allowable cost” pricing to drugs, billed for drugs that had expired National Drug Code identifiers, billed for prescriptions with false physician identifiers, dispensed drugs without prior authorization, and billed for quantities of drugs over approved limits. Spay furthermore contends that these practices were company practice in its Part D plans nationwide, potentially implicating billions of dollars’ worth of false claims submitted to Medicare. Given that Part D is the only government program that depends entirely on private companies, detection of fraud and abuse is more difficult for the Centers for Medicare and Medicaid Services (CMS), and reliance on whistleblowers may be critical to recovering funds for payments obtained by fraudulent means. The government has declined to intervene in the lawsuit at this juncture.

Under the qui tam provisions of the federal FCA, whistleblowers (called relators) may sue on behalf of the government for fraud in connection with payment from the government. Typically, complaints filed under the FCA are predicated upon the submission of a false claim for payment. There is also liability under the statute for so-called “reverse false claims,” which involve false claims submitted in order to reduce or avoid liability owed to the government. Dating back to 1863, the law has undergone many amendments, particularly since 1986, to expand whistleblower protections and increase the number of cases of fraud with coverage under the statute. Thirty states have their own analogs to the FCA; twenty states currently have FCAs designed largely to model the federal law, while ten states have FCAs which only cover cases of Medicaid fraud. Although the government may elect to intervene in a qui tam suit filed under the FCA, it does not always do so, as was the case with Spay’s lawsuit. Even if the government does not elect to intervene, however, many whistleblowers nonetheless proceed privately with meritorious claims. Whistleblowers stand to recover between 15% and 30% of any settlement or final judgment.

SEC Sets Aside $452 Million for Whistleblower Rewards

July 10, 2012 | Greene LLP

A mandated Securities Exchange Commission (SEC) whistleblower program, instituted as part of the Dodd-Frank Wall Street Reform Bill, reached its one year anniversary this week with a reported fund of $452 million set aside to pay out the first year’s rewards.

Whistleblowers may receive between 10% and 30% of the SEC’s recovery as an incentive for providing information in connection with potential securities fraud to the SEC. The program has already led to a veritable flood of tips from prospective relators on a daily basis, two to three of which on any given day are deemed worthy of further investigation.

The SEC program is similar in design to the federal False Claims Act (FCA), a whistleblower statute that has been on the books since 1863. Under the FCA, relators have standing to bring suit against individuals and corporations which have allegedly submitted false claims for payment to the government. It is also a violation of the FCA to submit a false claim in order to avoid payment of a liability owed to the government. Since 1986, the False Claims Act has undergone myriad amendments that, taken together, have worked to expand the protections available to whistleblowers and increase the number of valid claims under the statute. For example, the passage of the Fraud Enforcement and Recovery Act (FERA) in 2009, the Dodd-Frank Wall Street Reform Bill in 2010, and the Patient Protection and Affordable Care Act (PPACA) in 2010 all increased the scope of liability under the law. The 2009 changes to the law also included a broadening of the anti-retaliation provisions, expanding coverage to include not only employees, but also contractors and agents who make “lawful efforts to stop” violations of the FCA.

Supreme Court’s Health Care Ruling: What It Means for the False Claims Act

July 3, 2012 | Greene LLP

Yesterday, the United States Supreme Court voted to uphold the Patient Protection and Affordable Care Act (“PPACA”), the landmark health reform law enacted in 2010. The justices’ ruling in National Federation of Independent Business v Sebelius leaves intact nearly all of the provisions of the law (with the exception of an expansion of the Medicaid program), including a series of amendments to the False Claims Act (“FCA”) that entailed both procedural and substantive changes to the statute. In the wake of the Supreme Court decision, a review of the 2010 amendments to the FCA put into effect under the PPACA will help relators to understand the direct import of the landmark health care case to the likelihood of pressing ahead with a qui tam action under the FCA.

The FCA is a federal whistleblower statute that was passed in 1863 to mitigate the adverse impact of war profiteering on the federal treasury. The Act’s qui tam provisions allow whistleblowers (known as relators) to sue on behalf of the government for alleged fraud perpetrated against the government. At the heart of a successful qui tam action under the FCA is the submission of a “false claim” to the federal government, which typically involves false representations made in connection with payment from a government program or payment for performance under a contract with the government. In 1986, the Act underwent significant changes that widely expanded the number of actionable claims and lowered the barriers for relators to receive monetary awards for their participation in qui tam lawsuits. The statute allows the government to intervene in an action filed by a whistleblower, but even if the government does not intervene relators may proceed privately with their claims. Successful relators may recover between 15% and 30% of any settlement or final judgment.

In 2009, Congress passed the Fraud Enforcement and Recovery Act (“FERA”), a bill written to counteract the decisions of many federal courts to interpret the FCA in a narrow fashion that limited the types of fraud that gave rise to a qui tam suit. FERA was passed at the height of the financial crisis in 2008 in order to address the sorts of financial, securities, and mortgage-lending fraud that contributed to the panic. In 2010, the PPACA made several important changes to the FCA:

GlaxoSmithKline Will Pay $3 Billion In Largest False Claims Settlement Ever

July 2, 2012 | Greene LLP

In the largest settlement yet reached against a pharmaceutical company, the British drug manufacturer GlaxoSmithKline (“GSK”) has agreed to plead guilty to criminal charges and pay $3 billion in fines for marketing of three of its antidepressant drugs for off label uses (i.e., uses not approved by the FDA). The pharmaceutical giant pled guilty to the fraudulent promotion of Paxil, Wellbutrin, and Avandia. In addition, GSK pled guilty to a charge of failure to report safety data about a diabetes drug. The settlement also included civil penalties for improper marketing of six other drugs. The GSK settlement marks the capstone to what has been a record year for recoveries under the False Claims Act (“FCA”), a federal whistleblower law that allows whistleblowers (known as relators) to sue parties accused of defrauding the government. In May, Abbott Laboratories settled for $1.6 billion over its marketing of the psychiatric drug Depakote. The federal government is also likely to settle with Johnson & Johnson in the near future for as much an estimated $2 billion to dispose of allegations surrounding its off-label marketing of the antipsychotic drug Risperdal.

At least $10 billion have been agreed to in settlements so far this fiscal year under the False Claims Act. Off-label marketing of drugs was first accepted as a cognizable theory of recovery under the FCA in 2004, when Warner-Lambert, at that time a division of Pfizer, pleaded guilty to off-label marketing of its epilepsy drug Neurontin and agreed to a $430 million settlement. The claim against GSK originated from complaints filed under the FCA by four employees of the drug company, including a former senior marketing development manager and a regional vice president. The alleged conduct took place from the late 1990s to the mid-2000s. In addition to the allegations of off-label marketing, prosecutors claim that the company paid out illegal kickbacks to doctors in the form of trips, spa treatments, and hunting excursions. In the case of Paxil in particular, prosecutors allege that GSK engaged in fraudulent conduct to promote the drug for use in children, including helping to publish a medical journal article misreporting data from a clinical trial.

The False Claims Act is a federal whistleblower statute dating back to the Civil War. Originally passed as an anti-war profiteering measure, the statute has evolved significantly over time, particularly in the wake of a series of amendments since 1986 that have expanded whistleblower protections and broadened the number of types of claims that may be prosecuted. The law’s qui tam provisions confer standing on relators to sue on behalf of the government for false claims made in connection with payment from the government or to avoid liability. The government may elect to intervene in a suit filed under the FCA, but relators may proceed with their claims even if the government does not do so. Successful relators may recover between 15% and 30% of any final judgment or settlement. Any person who makes efforts to stop violations of the FCA may invoke the law’s provisions against retaliation by employers.

Abbott Laboratories Settle With Government for $1.6 Billion in Off-Label Promotion Case

June 27, 2012 | Greene LLP

In a case that illustrates the growing number of off-label promotion cases filed under the False Claims Act, on May 7th it was announced that Abbott Laboratories had agreed to pay $1.6 billion to settle allegations that it engaged in fraudulent marketing of its drug Depakote. The global settlement included a criminal guilty plea and the settlement of various civil claims. Additionally, the Office of Inspector General of the Department of Health and Human Services (OIG) and Abbott have entered into a five-year corporate integrity agreement (CIA), which will allow for close regulation of Abbott’s conduct going forward.

The case against Abbott reportedly began in 2007 when a whistleblower filed a lawsuit in federal court in Virginia under the qui tam provisions of the False Claims Act, a federal law that allows whistleblowers (also known as relators) to sue on behalf of the government for fraud. Three additional whistleblower suits were filed subsequently by others against the drug manufacturer, prompting a massive government investigation that reportedly involved witness interviews in 26 states and the production of more than one million documents.

Abbott admitted in its guilty plea to marketing Depakote, which has been approved by the FDA to treat epileptic seizures and biopolar mania and to prevent migraine headaches, as a treatment for schizophrenia and behaviors associated with dementia. The case bears a strong resemblance to the Neurontin off-label promotion case litigated in 1996 in which Pfizer settled with the federal government and whistleblower David Franklin for $430 million in the face of allegations that it had promoted the drug Neurontin, a drug approved by the FDA to treat epilepsy, for treatment of numerous off-label indications not approved by the FDA. Under the Federal Food, Drug, and Cosmetics Act (FDCA), pharmaceutical companies may not market drugs for uses that are “off label” (i.e., not approved by the FDA). The Abbott case also bears another resemblance to the 1996 Neurontin litigation: Abbott funded two studies on the use of Depakote to treat schizophrenia, neither of which bore out favorable results for the drug Depakote. In the Neurontin case, Parke-Davis, a subsidiary of then-Warner Lambert, had conducted studies which showed that Neurontin was less effective than a sugar pill at treating the symptoms of acute mania.

Supreme Court to Decide if Class May Be Certified in Amgen Securities Fraud Case

June 12, 2012 | Greene LLP

The U.S. Supreme Court has agreed to hear a challenge to the Ninth Circuit’s recent ruling in a securities fraud class action lawsuit against Amgen Inc., the world’s largest biotechnology company. In the shareholder action, investors in Amgen have alleged that the company misrepresented safety concerns surrounding two of its products, the anemia drugs Aranesp and Epogen, in order to bolster its stock price. According to the investors’ lawsuit, the alleged misrepresentations took place over a period of three years. The Ninth Circuit Court of Appeals sided with the investors, who seek to be certified as a class of plaintiffs in order to aggregate their claims for damages suffered as a result of a precipitous decline in Amgen’s stock price. In the Ninth Circuit appeal, Amgen argued the investors must demonstrate that the alleged misrepresentations caused the change in share price; the judges disagreed, finding that, if the other requirements for class certification are met, evidence regarding share price need not be presented until trial.

Circuit courts have issued conflicting decisions on this particular issue. The Second Circuit, based in New York, has held that investors must show that the fraud is causally linked to the change in stock price before a judge may certify a class; the Philadelphia-based Third Circuit found that such evidence was not necessary for class certification (although an affirmative showing that the alleged wrongdoing had no effect on trading, according to the Third Circuit’s ruling, would be sufficient to defeat class certification). The controversy comes on the heels of a Supreme Court decision, issued last year, in which the Court ruled that a group of investors could sue Halliburton Co. as a class without first showing that they lost money due to the alleged fraud. Investors in the Amgen case were led by Connecticut’s public employee pension plans.

Individuals may take action to combat fraudulent and abusive practices outside of the context of shareholder class action lawsuits. The False Claims Act, a federal qui tam whistleblower statute, allows private whistleblowers (also called relators) to sue on behalf of the government for false claims made in connection with receipt of government payments or avoidance of liability to the government. The government may elect to intervene in a whistleblower’s claim, but does not always do so, and whistleblowers may proceed with their claims irrespective of government intervention. The False Claims Act also provides employees protections from retaliation by their employers for taking efforts to stop violations of the Act. While the law initially required that a false claim be made directly to the government, a 2009 amendment to the statute has expanded the Act’s coverage to include false claims made to third parties, such as grantees or other beneficiaries of federal money. Relators may recover between 15% and 30% of any settlement or final judgment.