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BU Law Class Seven: All the Tools in the Regulatory Toolbox

In our most recent session in the Health Care Fraud and Abuse seminar at BU Law, we had a lively review of the variety of different ways federal and state agencies can regulate, encourage, punish, and otherwise direct industry decision-making.  It was a fun exercise, with not enough room on the chalkboard.

 

First, in addition to reading about corporate integrity agreements, exclusion and debarment remedies, civil monetary penalties, and the many criminal statutes that can be brought to bear, students were asked for homework to draw a diagram with one circle in the middle (doctors, hospitals, pharma companies, device companies) and four circles in the corners of the page.  Those four circles would represent 1) DOJ/FBI/and U.S. Attorney’s Offices, 2) State Attorneys General and state agencies, 3) the Food and Drug Administration, and 4) the Office of Inspector General of the Health and Human Services (“HHS/OIG”).  Then, using arrows and lines, they were asked to sketch the types of powers each of the outer circles could exert over the inner circle.  The chart above is our distillation of that collective effort.  Easy, right?

 

Interestingly, the four outer circles are just four of the biggest of a much larger universe of potential regulatory bodies a company or practice might have to deal with.  State pharmacy boards, medical licensing and disciplinary boards, and the like are all out there, too.  No wonder this arena employs so many lawyers.

 

As a particular case study, the class took on Friedman et al. v. Sebelius et. al., a decade plus long piece of litigation in the District of Columbia and the U.S. Court of Appeals for the D.C. Circuit, involving HHS/OIG’s use of its permissive exclusion powers to bar from participation in the government health insurance programs corporate officers convicted of Food Drug Cosmetic Act (“FDCA”) offenses.  Particularly insightful is the 2010 District Court opinion of Judge Ellen Huvelle, in which she affirmed the agency’s exclusion decisions of the lead actors in the FDCA misbranding case.  The dispute stemmed from the guilty pleas of Purdue Pharma and several executives to falsely understating the addition risks of OxyContin, manufactured by Purdue (which, as we know, has led us to a national crisis).  The defendants paid their fines, but then the individuals fought in court when HHS/OIG sought to exclude them for a lengthy period of time.

 

Both the company and the individuals had admitted their misconduct in guilty pleas entered under criminal Rule 11(e)(1)(C) (where the parties ask the court to adopt their agreed-upon disposition of the case, including the sentence.  Why, one wonders, didn’t the defense lawyers for the individuals wrap up the exclusion issue at the same time?  It’s a puzzle — the parties might have spared themselves a decade of litigation.

 

Judge Huvelle’s decision and order affirming the exclusions were based in part on the so-called Responsible Corporate Officer doctrine or “RCO”.  Following two Supreme Court precedents from decades past, United States v. Dotterweich, 320 US. 277 (1943) and United States v. Park, 421 U.S. 658 (1975), the RCO allows for misdemeanor convictions of corporate officers without evidence of direct knowledge of or involvement with the crime, a striking exception from the normal rules of the road in criminal cases.  If the evidence shows that the defendants had the power to stop the criminal conduct in some supervisory role, i.e., responsibility and authority for the work of others, then proof of actual knowledge and intent is not necessary.

 

In effect, the RCO borrows from civil tort law standards for establishing negligence:  that the defendant should have known and did nothing to stop it despite his/her power to do so.

 

If this sounds like a scary situation in which to be a corporate officer, there is a limiting principle or two:  First, this applies only to misdemeanor liability; to prove the felony violation. the government must still prove criminal intent.  Second, this applies only to the FDCA in the panoply of health care fraud criminal statutes.  There are no analogs to this, for example, in the Anti-Kickback Act.

 

So as to not kill the goose that laid the golden egg, government prosecutors use the RCO sparingly, so as to not trigger a judicial limitation on the doctrine.  In my opinion, they don’t use it enough to go after individuals who drive corporate malfeasance.  As an example, multi-billion dollar drug wholesaler AmerisourceBergen recently pled guilty to an FDCA misdemeanor and paid $260 million in criminal fines for wholesale misbranding oncology drugs for years in an unregistered Alabama “pharmacy” that was actually a drug re-packager and manufacturer.  As set forth in the government’s charging document, this lucrative scheme put many very sick patients at risk.

 

Charging the company with a misdemeanor in such a situation makes some sense, because a felony conviction would have led to mandatory exclusion, which might have harmed innocent third parties like low level employees or patients who need their drugs.  But if the government is in the misdemeanor neighborhood anyway, why not apply the RCO and go after the corporate captains who profited so handsomely from this?

 

Sally Yates, the Deputy Attorney General who later became famous for her principled stand on the Trump travel ban, wrote a memo during her tenure at the Department of Justice, urging prosecutors to be not-too-quick to give individuals a pass in corporate global settlements.  Part of her reasoning was that to achieve true deterrence, the government must cause corporate malfeasants to fear for their liberty, or at least for the contents of their wallets.  Still, charging corporate officers in these large corporate settlements remains the exception rather than the rule.

 

For some companies even a $260 million fine is just the cost of doing business as usual.  It’s the equivalent of a parking ticket for you and me, except it’s a parking ticket that someone else (shareholders) pays.

BU Law Class Takes On the Food Drug and Cosmetic Act

It wasn’t the first time, and it won’t be the last.

 

Sometimes during the semester of BU Law’s Health Care Fraud and Abuse seminar led by Whistleblower Law Collaborative Attorney Bob Thomas, news stories or case announcements surface at just the right time.  So it was this week — twice.

 

First, the U.S. Department of Justice announced last week the criminal plea of drug wholesaler AmerisourceBergen to charges of intentional misbranding of five oncology drugs that the company had manipulated and repackaged, putting patient health and safety at risk.  (See criminal information and plea.)  Then, just a few days later, the Washington Post and CBS News teamed up on a 60 Minutes Broadcast that exposed a deeply troubling effort by drug companies and distributors to strip the Drug Enforcement Administration of its powers to regulate the illegal distribution of opiates, despite an epidemic of opiate abuse in this country that is killing tens of thousands of Americans every year.

 

So it is not difficult to emphasize to students the relevance of the materials they are reading and analyzing.

 

The Food Drug and Cosmetic Act is a broad statute empowering the federal government (specifically the Food and Drug Administration) to regulate industry’s manufacturing and distribution of food and drugs.  Of particular relevance to the course on Health Care Fraud and Abuse are the concepts of 1) off-label marketing of drugs, 2) misbranding of drugs, 3) adulteration of drugs, and 4) compliance with Current Good Manufacturing Processes (“cGMP”) standards.

 

The statute provides a range of remedies for the agency to employ against industry misbehavior or mistakes.  There are criminal penalties for knowing misconduct, misdemeanor criminal liability for corporate executives who “should have known” and/or been able to stop misconduct, civil liability for damages and/or injunctive relief, as well as a range of administrative remedies, including inspection and recall powers.

 

Importantly, the statute can be used in combination with the False Claims Act to give the agency the power, in conjunction with the Department of Justice, to sue the drug companies for treble damages.  The seminar studied the case of U.S. rel. Eckhard v. Glaxo, a case from Puerto Rico and highlighted in a 60 Minutes expose, in which Glaxo failed to correct serious manufacturing deficiencies despite the repeated efforts of an employee-turned-whistleblower and despite the alarming list of “adverse patient events” from product mix-ups.  This was the first major case of FDCA manufacturing problems being combined with a False Claims Act theory of liability — the theory being that the government (e.g., Medicare, Medicaid) paid for things that were not what they purported to be and were therefore false claims.  This theory of liability has been followed many times since then, including last week’s AmeriSourceBergen plea, which dealt with oncology drug misbranding on a truly massive scale.  (Although this was a criminal plea under the Food Drug and Cosmetic Act, AmeriSourceBergen is also subject to civil False Claims Act suits relating to the same facts, according to its public statements, but those suits have not yet settled or been litigated.)

 

What these cases show, among other things, is how extraordinarily powerful the drug industry is in dealing with the federal agencies and with Congress, how the regulating agencies are often outgunned at every level in their efforts to police misconduct, and the essential role played by whistleblowers in the government’s attempt to protect the public and recoup its own financial losses due to this misconduct.

 

Next week Whistleblower Law Collaborative Attorney David Lieberman will help the students in the course unpack the often mystifying rules around the Stark Laws, another tool in the government’s anti-fraud toolbox.

Class Four: How to Influence Physicians Without Running Afoul of the Anti-Kickback Act

In the BU Law School Health Care Fraud and Abuse seminar, the topic this week is the anti-bribery law known as the Anti-Kickback Act, a criminal statute. The law prohibits the solicitation, receipt, or offering of “any remuneration,” direct or indirect, in cash or in kind between a vendor of drugs or devices and a provider (doctor or hospital) if such remuneration is tied in some way to referrals of business. It is a sweeping statute, designed to stop economic influences from driving physicians’ medical decisions.

 

There are all sorts of cases that have arisen under this law, from brazen cash-under-the-table bags of cash to much more subtle forms of “inducement.” Regulated industries have adopted voluntary codes of conduct on this topic, and virtually every pharmaceutical company compliance plan addresses this issue in some form or another. But still companies keep getting in trouble.

 

Why?

 

Part of the reason is that very few companies have adopted any alternative to the traditional eat-what-you-kill model of compensating their sales representatives. Generous bonus structures usually allow sales reps to greatly increase their compensation if they tear the cover off the ball in selling the product. Reps who hit high numbers that are out of line with their peers are often held up as heroes rather than being subjected to scrutiny about how they achieved such anomalous results. Reps who don’t push the envelope are often treated as laggards or simply let go.

 

One thing should be clear, though. It is not the sales reps who drive the numbers game; they are simply the troops following the orders. Sales targets are put in place by management, who often has investor and Wall Street expectations in mind. So there is an inherent tension between profit maximization and compliance with the law. Companies that have gotten in trouble with the AKA have failed to manage that tension.

 

For class this week, the students were given the following assignment to consider: “Assume that there are two similar products on the market, bioequivalent and the same in every way that matters (safety, efficacy, price, ease of administration). They are made by two competing companies who care very much about market share and are willing to be very aggressive in making sure that the other company doesn’t increase its market share to their detriment. The question arises: how can we get more doctors to write our drug rather than the competitor’s? In light of the AKA, what can you do to get their attention and potentially influence their prescription writing practices, without running afoul of the AKA?

 

Answers included:

 

Major advertising expenditures, both in television, trade journals, magazines and social media.

 

Attractive branding and naming of the product.

 

Making targeted charitable donations to earn goodwill in the community of patients and providers.

 

Hiring (or continuing to hire) very good looking, outgoing, friendly sales reps. (This suggestion was partly in jest, but only partly!)

 

Offering free screenings to patients.

 

Offering direct-to-consumer coupons to prospective patients.

 

Determining whether any beneficial arrangements can be made with third parties, such as pharmacies, group purchasing associations, wholesalers, and pharmacy benefit managers.

 

 

Welcome to the world of trying to make a profit while staying out of serious trouble. It’s tricky out there!

Health Care Fraud and Abuse Class Three: Taking on Theories of Liability

This week’s class at BU Law School in Bob Thomas’ course on Health Care Fraud and Abuse started the deep dive into theories of liability under the False Claims Act, and recent ways in which the law has evolved.

 

Starting with the language from the False Claims Act, the question of what actually is “false or fraudulent” within the meaning of the law was a good place to start.  Most “claims” are on their face truthful (e.g., provider treated patient in XYZ manner on ABC date), so how does the statute capture concepts of falsity or fraud in these circumstances?  If a doctor’s medical judgment has been polluted by a kickback or by illegal off-label promotion, for example, how does that make the doctor’s claims for reimbursement “false or fraudulent”?

 

Courts grappling with this question came up with their own body of judge-made law, using concepts of “express” and “implied certification” to hold (sometimes) that as a “condition of participation” in government health care programs or a “condition of payment”, there can be embedded in every claim an express or implied certification of compliance with applicable laws.  Thus, the argument goes, the government requires that contractors obey applicable laws and contracts only for “taint-free” services and is entitled to reimbursement where claims, even those that on their face are truthful, have been tainted by illegality.  The entity engaged in the bad conduct “caused” the doctor to submit a tainted claim, the theory goes.

 

Some courts have had trouble with these concepts, particularly where the non-compliant activity was, relatively speaking, trivial in nature or something that the paying government agency was already well aware of.  The Supreme Court recently clarified this complicated landscape — to a degree — in its Escobar decision of 2016.   In Escobar, the Court held that “implied certification” is a valid theory of liability, BUT that only false claims “material” to the agency’s payment determination would count for liability under the FCA.   In other words, if the transgression, had it been known, would have had a reasonable chance of changing the agency’s decision to pay the claim, then it’s material.  Lawyers have been quick to point out, however, that “materiality” is a factual question requiring discovery from government agencies.  So while it may be easier for whistleblower suits to survive initial legal challenges (motions to dismiss), the discovery phase of a case could be tricky as defense lawyers try to prove that a paying agency such as the Center for Medicare and Medicaid Services (“CMS”) was sufficiently aware of the issue and didn’t care enough about it to deny the claims.  Lots of work for lawyers ahead on that front.

 

As an example of an “implied certification” type claim, the seminar explored the current state of liability theories relating to “off-label promotion” of drugs and/or medical devices.  This theory, long a favorite of prosecutors, is premised on the notion that the marketing of unapproved uses of drugs or devices can lead to FCA liability.  While doctors are free to write prescriptions off label, companies are constrained by regulations from the Food and Drug Administration (“FDA”) in what they can say to promote such uses.  Running afoul of those restrictions has landed many a company in hot water on the theory of implied certification:  that claims are valid only if they are not tainted by illegal activity that caused the claim to happen.

 

Recently, however, the defense bar has successfully argued for a free speech (First Amendment) limitation on such FDA regulation and FCA liability.  The argument, successfully advanced in a Second Circuit case known as Caronia, is that if there is nothing false or misleading about off-label promotion, it must be protected by the “commercial speech” doctrine under the First Amendment.  The Supreme Court has not taken this question up directly, so Caronia is the law only in the Second Circuit Court of Appeals, but prosecutors are now forewarned that any off-label case they bring should include, at a minimum, some showing of falsity or deception, or some material omission in the communications in order to survive a defense challenge under the First Amendment.

 

Finally, as a way of tying together some of these concepts of “materiality” under Escobar and deceptive marketing, the class examined the tricky fact pattern that is often presented in off-label scenarios:  where the FDA has expressly not approved a certain use, but CMS has decided, based on available data in certain “compendia”, to reimburse off-label claims anyway.  Under Escobar, the fact that the paying agency is aware of the off-label promotion and literature, even reviews it, and pays the claim anyway makes prosecution of an off-label case highly problematic.  A prosecutor or whistleblower lawyer would need, for an FCA case to survive, substantial evidence of false and deceptive practices, or other illegal conduct like kickbacks, to keep such a case alive.

 

Speaking of kickbacks, that’s what the class will talk about next week.

Second Session in Health Care Fraud and Abuse Seminar Focuses on False Claims Act

At BU yesterday, the Health Care Fraud and Abuse did its first deep dive into the False Claims Act, the government’s primary weapon in this field and an extraordinarily versatile tool.  The statute allows federal prosecutors to seek treble damages, plus penalties of $11,000 per false claim, plus possible exclusion and debarment from the government health insurance programs.

 

 

For reading, the class took on the statute itself, as well as Department of Justice statistical records showing how much money has been recovered over the years via the False Claims Act (over $40 billion).  Moreover, the trend is clear that increasingly each year, the government relies on whistleblower suits for its investigative leads, as these suits now account for a greater amount of recovery that suits initiated by the government itself.

 

 

Several key points were stressed in the review of the statute:

 

 

How the liability provisions include not only the submission of false claims but causing them to be committed, conspiring to have them be submitted, and also the retention of overpayments.

 

How the intent standard of the law does not require “specific intent” but can be satisfied with a lesser showing of intent, like “reckless disregard” for the law.

 

How certain hurdles are embedded on the statute that can make success in these cases difficult to predict, like:  the first to file requirement, the public disclosure bar, the Rule 9(b) specificity pleading standards, and 4) the “government knowledge” and “materiality” issues.  And

 

How the federal FCA and 30 state FCAs inter-relate and how law enforcement coordinates on these matters.

 

 

Of course, we covered as well the role of whistleblowers and their counsel in identifying these cases, bringing them to the government, and helping the government investigate and prosecute them.

 

 

The students asked excellent questions throughout.

 

 

Next week:  The FCA in action:  theories of liability, First Amendment defenses to “off-label” cases, and the new materiality standard of Escobar.

Health Care Fraud and Abuse Starts New Session

Happy day after Labor Day, everyone!  And welcome back to work after what we hope was a great summer.

 

Here in Boston, the Labor Day Weekend avalanche of students moving back in to their living arrangements is mostly behind us (there are so many colleges and universities here that the U-Haul companies run out of trucks and vans this time of year).  It’s always quite a buzz.

 

At BU Law School this afternoon, Whistleblower Law Collaborative attorney Bob Thomas will be starting his seminar on “Health Care Fraud and Abuse,” a 13-part semester long course on the intricacies of the fraud and abuse problem in our health care system and what is being done about it.  (For a glimpse of how the course goes, here’s the syllabus.)  This is the seventh time Bob has taught the course at BU, and it remains a popular one among students.  Last year’s student comments included:

“Best class I’ve taken at BU.”

 

“Professor Thomas has proven to be one of my favorite professors in my time in law school.  His ability to foster enthusiasm and interest is a valuable and rare quality.  He is an asset to the faculty here!”

 

“Fantastic course!”

 

Today’s introductory class will cover the big picture:  how did the health care fraud problem come to exist?  What is the scope of the problem, and why is it so easy to defraud government health insurance plans, as well as private plans?  Who is working to slow down this problem, and what tools do they have at their disposal?  Finally, we will talk about the many different professional opportunities for young lawyers in this dynamic area of the law.

 

We will endeavor to post updates on the course each week.

Data, Databases and Disclosure – What Can Whistleblowers Do with Publicly Available Data

A little known provision, of the Affordable Care Act, Section 6002, requires pharmaceutical companies and device manufacturers to report the payments they have made directly to physicians.  42 U.S.C. § 1320a-7h. The law also requires the Centers for Medicare and Medicaid Services to maintain a database of these payments and to release annual reports detailing this data, which they do annually a year behind the submission date. The Centers for Medicare and Medicaid Services recently released its 2016 data on payments to doctors by pharmaceutical and device manufacturers. The big headline is that industry paid more than $8.2 billion to physicians last year, slightly up from $8.1 billion in 2015.

 

As Biopharmadive reported, giants like Roche and Novartis spent hundreds of millions on physicians, with around half going to research projects and the rest to benefits like travel and consulting fees. Some, like GlaxoSmithKline, claimed they have cut back on payments for speaking engagements, but the data still shows the company paying $901,917 to doctors for such payments.

 

CMS warns that inclusion of particular payments in the database does not indicate “any wrongdoing or illegal conduct.” 78 Fed. Reg. 9457, 9460 (Feb. 8. 2013). There can be many legitimate reasons for a company to pay a doctor, for example for running a research project while being compensated at fair market value. Nevertheless, some of the largest False Claims Act cases in history have been based on companies paying kickbacks to physicians and fraudulently misrepresenting them as legitimate payments. For example, in 2016 Forest Laboratories and Forest Pharmaceuticals paid $38 million to resolve allegations that they had paid doctors kickbacks as part of speaker programs, and earlier this year Shire PLC Subsidiaries paid $350 to settle allegations that it had paid physicians kickbacks for bogus case studies and speaking engagements.

 

CMS data makes it increasingly easy to scrutinize these payment relationships by looking up the physician recipients of pharmaceutical payments in other databases, such as CMS’s Medicare Part D utilization datasets. Such data show what doctors are prescribing (and billing to the government). Some entities have created tools such as Propublica’s Prescriber Checkup, which links data from these and other sources to provide a more fulsome picture of physician and industry activity. Looking up companies of interest in these databases can provide additional evidence to supplement a whistleblower’s personal knowledge.

 

The extent to which such data can support an FCA case alone is more questionable. The FCA has a public disclosure bar that requires courts to dismiss actions based on certain public disclosures unless the whistleblower has information that “is independent of and materially adds to the publicly disclosed allegations or transactions.” 31 U.S.C. § 3730(e)(4). Those public disclosures include federal hearings, congressional, Government Accountability Office or other federal reports, or the news media. Case law has established that allegations released by government agencies through the U.S. Freedom of Information Act fall under the public disclosure bar. Schindler Elevator Corp. v. United States ex rel. Kirk, 563 U.S. 401, 410-11 (2011).

Whistleblower Law Collaborative & Our Client Help the Government Recover $13.5 Million For Healthcare Fraud

Helping whistleblowers report and prosecute fraud can be difficult and exhausting work for both the relators and their attorneys. When doing this work it’s important to celebrate successes. Along these lines, we are thrilled to announce that the United States settled a False Claims Act case brought by our client  against three companies, Medi-Lynx Cardiac Monitoring, LLC, AMI Monitoring, Inc., Spectocor, LLC, and individual defendants who had concocted a scheme to cause unwitting physicians to order their most lucrative services regardless of medical necessity or reasonableness.

 

As part of their service, defendants utilized an online enrollment portal that steered physicians to select the highest reimbursing monitoring service, even though less expensive monitoring services were often medically appropriate. Through this scheme, defendants submitted, and caused the submission of, false claims to Medicare for unnecessary and unreasonable telemetry services. Under the terms of the settlement, defendants have agreed to pay some $13.5 million to resolve these claims.

 

Our client, Eben Steele, an employee of AMI/Spectocor, had worked in the industry for many years and believes that healthcare companies should serve their patients’ needs, not line their own pockets. He was “offended by this underhanded scheme. Not only was it overriding the doctor’s judgment about what the patient needed, but it was lining the Defendants’ pockets at the expense of the taxpayer.”  Mr. Steele approached us in late 2013 to see if, together, we could do something to stop this fraud.   After investigating his allegations, compiling his evidence,  and conducting research, we drafted and ultimately filed his Complaint under seal in March 2014 and then served the Complaint along with a statement detailing his evidence on the government.  We then worked with the government over the course of the next three plus years until the settlement.

 

One of the most important factors in ensuring success for an FCA complaint is filing it in a district where the government prosecutors have the expertise and enthusiasm to ensure success. We filed Mr.  Steele’s complaint in the district of New Jersey, permitting us to work with the excellent office there. We simply cannot overstate the outstanding work of AUSA Bernard Cooney, who prosecuted this case from the beginning with the assistance of AUSA Andrew Caffrey, along with support provided by investigators in the Office’s Health Care & Government Fraud Unit and at the Office of Inspector General of the Department of Health and Human Services.”

 

Whistleblowers like Mr. Steele are vitally important in the fight against government fraud. Under the FCA, a private citizen-relator who suspects or knows of fraud against the government can act as a whistleblower and file a sealed complaint on behalf of the government. If the case is successful, as it was here, the relator is entitled to a share of the government’s recovery. In this case, after several years of hard work by Mr. Steele, his attorneys, and government prosecutors, our client will receive some $2.43 million for his part in stopping an ongoing fraud against the government was stopped, and helping ensure that government victims were compensated.

 

We offer Mr. Steele our congratulations and deep gratitude for his efforts on behalf of the government.

Whistleblower Dilemma: Should I Sign A Release?

Many whistleblowers we work with at the WLC are reporting fraud against their own employer, and are also in the process of leaving the company — either voluntarily or due to retaliation. Roughly a quarter of our clients are faced with a particularly stark dilemma: sign a release that waives the right to a whistleblower reward, or forfeit a severance payment. Employers regularly make signing such a release a condition of severance even when the payment was promised and counted on by employees. A company aware of its potential liability has an even greater incentive to structure severance payments to buy former employees’ silence. While severance payments are far smaller than the potential False Claims Act (FCA) rewards (which can include damages for retaliatory denial of severance as well as a share of the government’s damages), the promise of immediate financial assistance during a time of transition can be difficult to pass up in favor of the uncertain hope for a share of the government’s recovery after years of investigation or trial.

 

There is no one right answer to this dilemma, but one imperative is clear: never sign an employment release until you’ve sought legal advice, not just from an employment attorney but, from a specialist alert to the nuances of this area of whistleblower law.

 

Some whistleblower laws, such as the SEC whistleblower program, specifically forbid waivers of the right to a reward. Any release that requests you do so is not only unenforceable, but constitutes a separate illegal act on the part of the employer. Indeed in January, the SEC reached a $340,000 settlement with asset manager Blackrock, Inc. over charges it improperly included such waivers in the separation agreements for exiting employees. Upfront confidentiality agreements prohibiting communication of wrong-doing to the SEC can also be actionable as “pretaliation.”

 

Releases of FCA liability are always unenforceable because liability for fraud against the government can only be released by the government, not by a whistleblower or potential whistleblower. However, waivers of a putative relator’s right to collect a future reward have been enforced by some courts, but generally only if the government was already informed of the fraud allegations. Courts enforcing these agreements have reasoned that where the government was so informed, the public policy argument justifying these awards doesn’t apply.

 

Last year, the Second Circuit Court of Appeals interpreted this narrowed enforcement rule in United States ex rel. Ladas v. Exelis, Inc. , 824 F.3d 16 (2nd Cir., 2016). The court held that a contractor’s vague disclosure to the government regarding a change in its manufacturing process was not sufficient to put the government on notice of its fraud to justify enforcement of a release. The court noted that the contractor downplayed the change as “inconsequential,” didn’t disclose that it had changed the adhesive it was using, and failed to reveal that there was any kind of fraud or fraud allegation. Ladas represents relatively good news for whistleblowers who have already signed a release, as it suggests that employers who haven’t been fully candid with the government may not be able to enforce the agreement even in jurisdictions that would otherwise permit it.

 

However, for whistleblowers who haven’t signed releases, there’s still a need for caution. Determining which disclosures will be deemed sufficient to justify a release is a highly fact-dependent inquiry and very difficult to predict at the beginning of a case. See, e.g., United States ex rel. Ritchie v. Lockheed Martin Corp., 558 F.3d 1161, 1170 (10th Cir. 2009) (disclosures of what employer considered “baseless” allegations of fraud deemed sufficient to serve the policy interest in disclosure). Moreover, a potential whistleblower may not know what facts, if any, their employer has disclosed. Furthermore, sometimes a potential relator has already disclosed information to the government through a pre-filing disclosure or tip to the government before filing an FCA complaint in court.

 

Ultimately whether a release is upheld will depend on a court’s views and biases about the whistleblower and the defendant’s motives. Even in the best of circumstances, predicting these outcomes is nuanced and uncertain. For a potential whistleblower facing the prospect of unemployment, it is not a determination that should be made alone. It requires competent legal advice based on the facts of the case, the precise law of the filing jurisdiction, and the client’s situation.

Photo credit: Adapted from BSG Studio

Really Expensive Food You Didn’t Know You Bought

By Robert M. Thomas, Jr.

How much can you spend on overpriced bananas?

 

Quite a bit, it turns out. Late last week the government announced a $344-million-dollar settlement in a case filed thirteen years ago under the False Claims Act (“FCA”) by a whistleblower alleging that Kuwaiti food contractor Agility was over-charging the military for fresh fruits and vegetables delivered to U.S. troops during the Iraq war. $344 million. I don’t know about you, but that seems like quite a food bill to me.

 

The case was brought under the FCA, as are many of the cases we bring at the Whistleblower Law Collaborative in Boston. One of the many interesting aspects of False Claims cases is their scale. Small discrepancies, or seemingly insignificant mark-ups, can in the context of large contracts, yield huge dollars in illegal profits. Yes, even for fruit and vegetables. In the Agility case, the $344 million was $95 million in damages, plus another $249 million in claims submitted that the company agreed to withdraw as inappropriately charged.

 

In a normal transaction, a 5% mistake, say an extra $2.50 on a $50 dinner bill, is negligible. Depending on one’s attentiveness or neurosis about money, one might choose to ignore it rather than going back to the restaurant to complain or ask for the money back.

 

However, when you add a bunch of zeroes to the number, things start to look different. A 5% fraud rate on a $100 million contract is $5 million in single damages (but could be trebled to $15 million under the FCA). A 5% fraud rate on a $1 billion contract is $50 million, before possibly being trebled. The Iraq War cost several trillion dollars all told. You start to see the nature of the problem.

 

Similarly, during the “Big Dig” highway project here in Boston a few years ago, where the feds agreed to underwrite the sinking of an interstate highway below the city’s streets, the price tag evolved from one billion to two, and then seven, ten, eventually fourteen. How does that happen? The steady drip, drip, drip of contract amendments, change orders, and the like, and next thing you know the taxpayers are paying fourteen times what was agreed to. Whistleblowers eventually came forward (towards the end of the project) to explain the mischief in the project’s finances, which had ballooned out of control.

 

Another source of FCA fraud cases on an enormous scale is the government health insurance programs, such as Medicaid and Medicare. These are a huge problem for much the same reason (a 90% compliance rate in a trillion-dollar health care economy translates into a $100 billion per year problem). Health care fraud cases constitute the majority of our FCA cases at the Whistleblower Law Collaborative. Why are these so prevalent? Because federal reimbursement systems are largely based on a type of honor code: the systems allow the contractor to submit claims electronically, and coding manipulations can be hard to detect in the absence of a witness coming forward to help the government see what it cannot see on its own. The government typically pays the claims and chases the bad ones after the money’s been paid out, the so-called “pay-n-chase” model. For people and entities willing to engage in gamesmanship, it’s a lucrative game to manipulate these vulnerable honor systems. Whistleblowers have become the government’s primary weapon for making the lucrative game more risky — and for recovering the money wrongfully obtained.

 

False Claims Act cases can arise in any number of situations in which the government spends money. The Pentagon’s massive expenditures are certainly fertile ground. As documented in L.A. Times reporter Chris Miller’s 2007 book, Blood Money: Wasted Billions, Lost Lives, and Corporate Greed in Iraq, huge sums of money were lost and fraudulently spent in the Iraq War, as the price of that conflict (originally touted as a self-funding enterprise costing the taxpayers nothing) ballooned into the trillions of dollars and turning a national surplus into a national deficit. As whistleblower lawyers, the frustrating aspect of that situation was knowing that fraud existed but that it would be incredibly hard to get to the facts in sufficient detail to bring legal action. Very little paper existed for the contracts and sub-contracts; witnesses were in Iraq and throughout the Middle East. Traveling to those areas for fact-finding was almost impossible and would involve prohibitively expensive security details and the like. Because of this, the Iraq conflict became known among whistleblower lawyers as a “Free Fraud Zone.”

 

The money flowed and flowed in Iraq, but the whistleblower cases did not come, at least not right away. Just like the Big Dig, towards the end of the conflict when things had quieted down somewhat, people began to surface to make claims against defense contractors like Blackwater and Halliburton for a variety of over-charging schemes. And thirteen years after it was first filed, the Agility case shows that the money stolen in that conflict is still being recovered.

 

Taxpayers bear the brunt of these schemes. Whether it’s a city tunnel that cost fourteen times what was originally projected, or up-coded medical bills, or the most expensive bananas in the history of the world, you and I are stuck with the bill.

 

About the author: Bob Thomas is a Boston-based attorney and a principal in the Whistleblower Law Collaborative, whose work is the representation of whistleblowers. In addition to his work on behalf of whistleblowers, Bob is a board member of the ACLU of Massachusetts and an adjunct professor of law at Boston University, where he teaches a course on Health Care Fraud and Abuse.