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Supreme Court to Rule on False Claims Act Case Where the Seal Requirement was Violated


Can loose lips sink ships? Or put another way, if a relator or his agent breaches the seal provision of the False Claims Act, must the case be dismissed? This is the issue currently pending in the United States Supreme Court where the Court recently heard oral arguments in State Farm v. United States ex rel. Rigsby.


In Rigsby, the relators, two sisters who had been insurance adjustors for State Farm, alleged that State Farm defrauded the federal government by claiming that Hurricane Katrina related claims were ones eligible for coverage by the United States, thus getting State Farm off the hook for the insurance claims. A jury agreed with the relators, finding that the federal government had been defrauded of $250,000, and State Farm was ordered to pay $758,000 in damages under the FCA’s treble damages provision. The sisters were awarded $227,000 by the United States as a relator share for disclosing the fraud under the False Claims Act. The verdict was later affirmed on appeal by the United States Court of Appeals for the Fifth Circuit.


State Farm is asking the Supreme Court to dismiss the case because the relators’ (now former) attorney revealed the allegations to several members of the media while the case was still under seal. State Farm’s position is that a violation of the FCA’s seal requirement necessarily mandates that the FCA qui tam case be dismissed. The United States Department of Justice and the relators argue that the court has discretion and should apply a balancing test, using factors such as bad faith, harm to the government, reputational harm to defendant, severity of violation. Those who attended the argument report that the Court seems poised to unanimously reject State Farm’s argument, and adopt some type of balancing test.  And the transcript of the argument confirms this view.


Regardless of how the Court rules, relators and their counsel violate the mandatory seal provision of the False Claims Act at their peril. The FCA expressly states that the complaint shall be filed under seal, and it remains in that posture until the Court enters an order unsealing the action. Unless and until it does so, violations of the seal order are punishable by contempt and other sanctions. Whether the sanction involves the case being dismissed or not, DOJ takes the position that a relator’s breach of the seal may decrease the award/ relator share paid to the relator in a successful case. While the briefs and the oral argument transcript discuss many nuances and interesting questions (e.g., is it only the fact that there is a complaint filed in court that is subject to the seal or are the underlying allegations also covered by the seal?), the fact remains that relators and their counsel must be vigilant and careful while the seal is in place.


Vermont Uses Its New False Claims Act to Reach Medicaid Fraud Settlement

Vermont joined the ranks of 29 other states when it enacted a state False Claims Act effective May 2015. Now this week the Vermont Attorney General announced what appears to be the first settlement under that law, for in excess of $460,000 with Keene Medical Products, a durable medical equipment supplier offers numerous services, medical devices, and medical supplies to patients.


According to the terms of the Settlement Agreement, the State accused Keene of  a variety of false billings to and overpayments from the Vermont Medicaid Program, including double billing and billing for services that were not medically necessary or reasonable. Under the settlement, Keene will pay the state for its past transgressions. To help ensure that Keene complies with the law going forward, the settlement also includes a Corporate Integrity Agreement with provisions requiring an independent review of Keene’s claims for the prior two years, and up to three years following the settlement. In addition, Keene will be required to return to Vermont Medicaid any overpayment identified by those reviews and must also establish an internal compliance program designed to prevent or limit future false claims.


Vermont’s new False Claims Act (FCA) contains a qui tam or whistleblower provision that like the federal FCA and most other state FCAs enables a whistleblower to commence a FCA suit and collect a reward if the suit is successful. Like these other FCAs, it also has a provision protecting whistleblowers from retaliation. Here, it appears there was no whistleblower, probably because the Vermont FCA is so new and Keene’s misconduct largely predated the law. But going forward, whistleblowers who know about misconduct in Vermont now have a remedy. And as more and more companies doing business in Vermont adopt (voluntarily or not) internal compliance programs as Keene agreed to here, the more potential whistleblowers should become aware of the law, their employer’s obligations, and the employee’s rights and options.

Hold Them Accountable

Well, it’s the day of the Iowa caucuses, as the never-resting machinery of American Presidential politics kicks into high gear.  Many people,  understandably, are tired of it already.


Yesterday, though, an article in yesterday’s New York Times caught my eye.  It was an op-ed piece by our Massachusetts Senator Elizabeth Warren.  She reminds us of the many ways in which elections matter, emphasizing that the personnel appointments at federal agencies–made by the President–have substantial influence on how well laws are enforced, or whether they are enforced at all.


Warren’s staff just released a short little report, called Rigged Justice: 2016, How Weak Enforcement Lets Corporate Offenders Off Easy, and it does a nice job of summarizing some of the high profile cases where companies doing serious damage to the public have simply bought their way out of trouble by paying some (seemingly) hefty fine or penalty, often with no admission of guilt or liability, and no individual corporate actor being held responsible civilly or criminally.  You can read the report here.  Many of them are False Claims Act cases, i.e., the kind of cases we work on.


The theme of lack of individual accountability is one we’ve touched on many times in this blog, and for good reason.  Until individual corporate officers are held individually accountable, companies will continue to pass these penalties off on to shareholders.  When a company has $10 billion in revenue, how much does it really deter misconduct to pay a $100 million fine?  And if that $100 million is paid by shareholders only, does it really slow down the bad conduct at all?  In an unusually candid admission, one CEO of a corporate offender, apparently said that “it remains to be seen” whether the company’s  recent multi-million dollar settlement for paying kickbacks would actually change the company’s behavior.  Wow, he really sounds chastened, doesn’t he?


As whistleblower lawyers, we care deeply about how well or how poorly laws are enforced.  It not only affects our livelihoods, but it has enormous personal consequences to our clients who are risking so much to do the right thing.  And of course lax enforcement breeds contempt and cynicism from the public at large.


So yes of course Presidential elections matter.  They determine what kind of Supreme Court we end up with; they determine whether we go to war or not; they determine to a large extent whether the Executive Branch pushes government to work better or go into hibernation.


Professionally speaking, we hope that the country elects a President who understands that “rigged justice” is not justice at all.  Why should whistleblowers take personal and professional risks if the investigators, prosecutors, and agencies heads don’t really believe in vigorous enforcement of the laws?

Turning Your CEO Into a Whistleblower

We wish we didn’t see this kind of story all the time, but we do:  A high level executive gets sacked for trying to do the right thing.


In this case, Chief Executive Officer of a healthcare company recommended to his Board of Directors that the company self report about $ 10 million in improper payments he says the company received.  The Board sacked him, and this whistleblower retaliation suit ensued.


Now of course we don’t know all the details about who’s right and who’s wrong.  Those are the kinds of things that will be shown as the case now winds its way through the court system in what undoubtedly will be a messy, mud-slinging affair.


What if the Board had taken a different course?  What if they had followed his advice?  Could they have been acting without legal advice?  If they did get legal advice, how sound could it have been if the CEO stood his ground and said no we have to report this?  The imagination runs loose wondering how bad it must have been for the Board to invite this kind of public airing of the company’s internal affairs — which apparently include not only alleged False Claims Act violations but also violations of the government prohibitions against self-dealing under the so-called “Stark” laws.  Potentially quite smelly indeed.


This will be a full employment scenario for litigators, as the Board members themselves will now all be witnesses and drawn into discovery about their reasoning for terminating a person who says he was simply trying to follow the law — protected ground under the False Claims Act.


If the Board of Directors thought the problem would quietly go away, they miscalculated badly.  Now it will live on for months or years.  And the government — those folks with badges and guns — can simply sit back and see how it all unfolds, and decide whether to weigh in at some point about the company’s conduct.


Could it be that the Board took this seemingly ill-advised approach because they have their own personal interests to protect?  The suggestion of possible Stark violations certainly raises this question.  Why else would they expose the company to an obvious whistleblower retaliation suit?

Compounders Stick It To TRICARE

We all hear a lot about the abuse of the Medicare and Medicaid systems, as the federal government struggles to contain health care fraud.  We hear a little less about the parallel problem of fraud against TRICARE, the Department of Defense’s health insurance program for the members of our military services and veterans and their families.


But it’s the same sport.


Government reimbursement systems are, for the most part, honor systems.  And like all honor systems, they are easily gamed.  Because claims are presumed valid and paid, and only chased later if determined to be improper (“pay and chase”), it’s an attractive world in which to do business for the ethically challenged.


This article, which appeared in the Wall Street Journal on November 9, 2015, is yet another example of how big the problem is and how important whistleblowers are to combating it.  It seems that compounding pharmacies, about which we’ve written quite a lot on this blog, have targeted TRICARE beneficiaries “because the program was known to reimburse compounded drugs more generously than other federal health programs like Medicare,” according to the article.


Talk about the cart leading the horse.  Instead of a patient-focused program (who out there needs our product?), these firms paid heavy bonuses to sales teams to target military members and their spouses because they knew TRICARE was more generous — or, shall we say, less alert to such scams.


A nickel here, a nickel there, this huge increase in compounding pharmacy prescriptions is the “primary driver” in the military’s $1.3 billion budget shortfall.  Ouch.  That’s a lot of compounding cream.


Thankfully, there are people drilling down on this problem, and it sounds like there will be more than civil damages sought.  Because of apparent kickbacks used in the promotion of the drugs, there may well be criminal indictments as well.


None of these efforts to stop the bleeding would have happened without whistleblowers coming forward and alerting law enforcement.  They are the ones risking their careers to set the record straight and get the problem fixed.  More power to them.

There Is a New Sheriff in Town—Just Ask Warner-Chilcott’s President

In our recent post about the tentative Novartis settlement we questioned if it would be business as usual at the Department of Justice despite the Yates Memo earlier this year.  The answer came swiftly, when DOJ and the Boston U.S. Attorney’s Office announced on October 29,  a $125 million criminal and civil health care fraud settlement with Allergan unit Warner-Chilcott AND the indictment and arrest of its President, W. Carl Reichel.  Maybe the handwriting was on the wall when three former Warner Chilcott district managers pleaded guilty or agreed to plead guilty to conspiracy to commit health care fraud and criminal violations of HIPAA (the health information privacy statute), and a Springfield, Mass. physician was indicted for taking kickbacks, violating HIPAA, and obstruction of justice.  But it is a big step to haul in the President of a company.


The settlement with the company included a criminal plea agreement and criminal fine of almost $23 million, as well as a $102 million civil settlement under the whistleblower provisions of the federal and state False Claims Acts.  (See also criminal information.)  The whistleblowers who initiated the FCA case will receive a reward of over $23 million. Resolved in the settlement were charges that the company used various means to illegally promote the use of its drugs, including  Actonel®, Asacol®, Atelvia®, Doryx®, Enablex®, Estrace®, and Loestrin®, and various formulations of these drugs. The illegal activities included paying kickbacks to influence doctors to prescribe these drugs, using protected patient health information to fill out prior authorization forms and employees holding themselves out as doctors in submitting such forms to insurance companies so that the more expensive Warner-Chilcott osteoporosis drugs (Atelvia® and Actonel®) would be authorized instead of the less expensive competitors’ drugs, and making false statements about the superiority of the drug Actonel®.

The company’s President, Mr. Reichel, was indicted on one count of conspiracy to pay kickbacks.  The Indictment alleges that between 2009-2012, he was the mastermind of a sales and marketing strategy that provided lavish kickbacks to doctors.  If convicted, he faces a sentence of no greater than five years in prison, three years of supervised release, and a fine of $250,000.   No doubt he will vigorously fight the charges, and we shall wait and see if DOJ can make the charges stick in a jury trial where the burden of proof on the government will be beyond a reasonable doubt.

Health Care Fraud & Abuse takes look at FDCA

This past week, students in the Boston University School of Law Health Care Fraud and Abuse seminar learned about the Food Drug & Cosmetic Act, and the creative ways in which prosecutors and whistleblower attorneys have paired misbranding, adulteration, and manufacturing irregularities to liability under the False Claims Act.  The now infamous Cidra case in Puerto Rico, in which Glaxo Smith Klein paid $750 million in fines, damages, and penalties, served as the case study.


This  week, the focus turns to “Remedies,” by which we mean some of legal tools at the government’s disposal as it evaluates the seriousness of corporate misconduct in particular settings.  How and when are companies and/or officers “excluded” from future participation in government health insurance programs such as Medicare and Medicaid?  How do the exclusion remedies impact settlement and plea negotiations between the government and companies?


Students were given the following assignment for next week:

You work at a law firm as a young partner and a client in the health industry emails you a question:  “Hey sorry to bother you with this, but I need  some help understanding something I just read.  I was following the Purdue case (oxycontin) and saw some reference to the ‘responsible corporate officer’ doctrine.  They said something about ‘strict liability’ which sounds pretty scary to me.  I thought that in order to get in serious legal trouble, someone had to intend to do something bad.  Unless I’m mis-reading this, it seems to suggest that you can get in trouble for something that you didn’t even know about or were directly involved in.  And it’s a criminal case!”


“How on earth can the government try to send someone to jail for something that he didn’t know about?  I don’t get it; is this really the law?  Is there no limitation on this?”
“Related question is to what extent does/would this apply to corporate boards of directors?  It seems to me that if this doctrine means that you can go to jail for being generally responsible for but not directly involved in a bad course of conduct, then corporate directors would theoretically have some risk.  Do we need to advise our boards of this?”

“Thanks for whatever guidance you can provide.”


The application of the Responsible Corporate Officer doctrine remains an area of fascination, although high level corporate managers might find other ways of describing it.  While this theory of criminal liability — which exposes individuals for “strict” liability for criminal misdemeanors under the Food Drug & Cosmetic Act — stands as a powerful symbol of law enforcement’s reach, the reality is that the government is quite sparing in its use of this tool.

Wary of slaying the goose that laid the golden egg, the government has been (some would say thankfully) judicious in choosing when to hold corporate officers criminally liable for conduct that they were “responsible for” even without direct participation.  With the judiciary standing as a clear check on prosecutorial over-reach, aggressive use of the theory could trigger a judicial backlash, with judges finding ways to limit the doctrine in cases where it would “shock the judicial conscience.”

One can imagine the poisoned-pen of Justice Scalia, for example, slicing this doctrine down to size if given the right opportunity.  So the government’s answer has been to use the doctrine selectively, with cases involving very bad facts, leaving little room for judicial outrage.

So the quizzical inquiries from alarmed corporate officials are mostly overwrought.  In fact, the government leaves this option off the table most of the time.

Why the False Claims Act is Essential

Back when I was an Assistant U.S. Attorney, one of the jokes that would circulate in the office, in response to a fact pattern where the defendant did something really stupid, virtually guaranteeing that he would be caught, was:  “We don’t catch the smart ones.”  Courtrooms all over the country are filled with stories of people doing self-defeating things, not only criminal behavior, but behavior that rational actors would know would land them in prison.  Think of the bank robber who wrote his demand note on the back of his pay stub, with all his identifying information on it.  (Yes, I really did have a case like that.)


In the fraud arena, the same phenomenon exists.   We have the world’s largest Honor System in the reimbursement of Medicare and Medicaid claims, with claims being paid first and problems being chased later (the “pay and chase” system).  As readers of this whistleblower blog know, there is no limit to the ways in which fraudsters can game these systems, to line their pockets, to advance their careers, and to steal from the rest of us.


Given how easy it is to cheat Honor Systems, why do people go so far overboard, like the doctor who was convicted of a $2 million overbilling scam in which he claimed to treat 156 patients per day?  The answer has to do with human greed and ambition.  Once people realize that a small fraud is successful and mostly difficult to detect, it is very difficult not to head down the slippery slope towards a larger fraud.  For those without a functioning moral compass or under great pressure from superiors, engaging in a more and more blatant fraud becomes a means to wealth, or a means to self-aggrandizement, or even a means of survival in a company where unrealistic sales targets are required to be met.


So when you’re going 65 mph in the center lane of a highway where the speed limit is 55 mph, you may wonder “What on earth is he thinking?” as some guy goes flying by in the left lane at 90 mph.  You were speeding too; it’s just that you were speeding intelligently.


The speeding analogy is a good one.  That guy going 90 is hurting the rest of us by putting us at extreme risk of physical injury, just as the fraudster is taking our tax dollars.  But the speedster and the fraudster have both engaged in some twisted internal logic that guides them into thinking that they won’t get caught – THAT THERE AREN’T ENOUGH COPS OUT THERE TO CATCH ME.


Sadly, there is some truth to the logic, which is why the False Claims Act and its qui tam whistleblower provisions are so essential.  With whistleblowers being the government’s eyes and ears, there are so many more eyes and ears out there to aid law enforcement.  It helps balance the playing field a bit: sure there’s no HHS OIG agent looking over one’s shoulder at every minute.  But his employees are around all day long, and they’re not stupid.  And they might just have a moral compass more sensitive than someone distracted by how easy it is to get rich gaming the system.


Maybe it’s true that “we don’t catch the smart ones.”  But at least with the False Claims Act, prosecutors get a fighting chance to catch fraudsters, and maybe, just maybe, it gets people to slow down as they speed past their more honest peers.

Happy Fourth of July from Boston

The patriots who signed the Declaration of Independence over 235 years ago, concluded the Declaration with these words:

And for the support of this Declaration, with a firm reliance on the protection of divine Providence, we mutually pledge to each other our Lives, our Fortunes and our sacred Honor“.

Had their bold experiment failed, they would have lost everything, including their lives.


As the long 4th of July holiday weekend is unfolding, let us remember the vision, sacrifice, faith, and hard work that have preserved our democracy, and appreciate the many acts, large and small, that contribute to the common good.


Among these are the courageous whistleblowers who at great personal cost come forward to tell “the government”, our government, that it is being cheated, by a defense contractor, a health care company, a bank, or others.   Sometimes they succeed, sometimes they fail, but regardless they are doing their part as citizens in a democracy.

In just the past month, we have already seen the largest settlement involving alleged violations of the Anti-Kickback Statute by skilling nursing facilities in the United States, Trinity Industries was ordered to pay 463.4 for defrauding the Federal Highway Administration, and UPS agreed to pay for False Claims Act violations.  All due to the contributions of whistleblowers.  Their bravery, and the dedication of the public servants who work the cases, inspire us.

We wish everyone a safe and happy Fourth of July from Boston!

DOJ Weighs in on Circuit Split on False Claims Act First-to-File Issue

A key provision of the False Claims Act is the so-called “first-to-file” bar which prevents a case from proceeding if there is a “related” action “pending” at the time the case is filed. After the United States Court of Appeals allowed a whistleblower’s case to proceed despite the fact that another related case had at one time been filed, the Supreme Court has been asked to grant a petition for a writ of certiorari to review this question.


Recently, DOJ filed an amicus brief expressing its view that the Fourth Circuit correctly interpreted and applied the FCA’s first-to-file provision and the issue does not merit review by the Supreme Court.  The Fourth Circuit held that  once a case is no longer “pending” (e.g., has been dismissed and there is no pending appeal), the first-to-file provision does not bar a relator from filing a related case.


While this outcome would seem obvious given the plain language of the FCA provision and the meaning of the word “pending,”  the defendant in the Fourth Circuit case is arguing that the recent contrary decision by a panel of the United States Court of Appeals for the D.C. Circuit creates a split in the circuit courts that merits Supreme Court review and resolution.


In response, the Solicitor General and DOJ argue that the Fourth and Seventh Circuits are in agreement with DOJ’s view, that the Tenth Circuit has agreed (albeit in dicta),  and that the D.C. Circuit decision was a panel decision only with a vigorous dissent with a petition for rehearing en banc now pending.


As such, DOJ views the split as the a narrow one that may well be resolved by the D.C. Circuit itself, and thus Supreme Court review is not merited. Brief at 25-29  (pdf pages, not brief pages).


We expect the D.C. Circuit will hear the case en banc and will ultimately agree with the other Circuits, rather than give the FCA a tortured reading. We also expect the Supreme Court will not grant certiorari to hear the Fourth Circuit case.


Nevertheless, the case is a good reminder of the many potential pitfalls or land mines a relator and his or her counsel may encounter as well-funded defendants lob myriad arguments and defenses into the courts.  Both the whistleblower and their counsel should expect significant (and often unforeseen or unknown) risks anytime a qui tam case is filed.