2005 Profitable Year for Whistleblowers

Evelyn Pringle October 6, 2006

The year 2005 was a very good year for Whistleblowers. According to a report by the Department of Health and Human Services, a grand total of $136,756,946 was awarded to Whistleblowers who filed qui tam lawsuits on behalf of the Federal government under the False Claims Act. By contrast, in 2004 Whistleblowers were awarded $82,867,287.

The Health Insurance Portability and Accountability Act of 1996 established a national Health Care Fraud and Abuse Control Program, under the direction of the Attorney General and the Secretary of the Department of Health and Human Services, acting through the HHS Inspector General, to coordinate federal, state and local law enforcement activities with regard to public and private health care fraud and abuse.

The Act requires that recoveries from health care investigations, including criminal fines, forfeitures, civil settlements and judgments, and administrative penalties, but excluding restitution, compensation to the victim agency, and Whistleblower's shares, be deposited in the Medicare Trust Fund.

The Act appropriates monies from the Trust Fund to an expenditure account, called the Health Care Fraud and Abuse Control Account, in amounts that the Secretary and Attorney General certify as necessary to finance anti-fraud activities. The maximum amounts available are specified in the Act. Certain of these sums are to be used only for activities of the HHS/OIG, with respect to Medicare and Medicaid programs. In FY 2005, the Secretary and the Attorney General certified $240.558 million for the Account.

During FY 2005, the Federal government took in approximately $1.47 billion in judgments and settlements, and attained additional administrative impositions in health care fraud cases. In comparison, during 2004, the government won or negotiated less than half that amount at approximately $605 million, in judgments and settlements. Since the inception of the program in 1997, the HCFAC has returned over $8.85 billion to the Medicare Trust Fund.

In FY 2005, the US Attorney’s Offices (USAOs) were allocated $30.4 million to support civil and criminal health care fraud and abuse litigation. The 93 US Attorneys and their assistants, are the principal prosecutors of federal crimes, including those committed by health care providers.

In FY 2005, the Criminal Division was allocated $1.58 million to support criminal health care fraud litigation. The Fraud Section of the Criminal Division develops and implements white collar crime policy and provides support for the federal white collar enforcement community, which includes the Division’s health care fraud and abuse responsibilities.

In FY 2005, US Attorneys' Offices opened 935 new criminal health care fraud investigations involving 1,597 potential defendants. Federal prosecutors had 1,689 criminal investigations pending, involving 2,670 potential defendants, and filed criminal charges in 382 cases involving 652 defendants. A total of 523 defendants were convicted for health care fraud related crimes during the year.

In one major case that ended a Department of Justice investigation that began in 1998, Boston Scientific paid $74 million to settle charges related to the company’s illegal distribution of the Nir ON Ranger with Sox coronary stent delivery system. Boston recalled the device less than two months after its commercial launch because of a defect that affected its safety and effectiveness.

The government alleged that Boston shipped more than 30,000 adulterated and misbranded devices to hospitals throughout the country and accused further Boston of continuing to ship the devices for weeks after an internal investigation had determined that a large number of the devices were not functioning properly.

Back on October 5, 1998, Boston notified the FDA that it was immediately stopping shipments of the device and was pulling the product off the market, but later that same day, Boston shipped an additional 833 units to hospitals across the country. According to the reports to the FDA, the defect was responsible for 26 injuries, including several surgeries to remove a dislodged stent.

Civil attorneys in the USAOs are responsible for bringing civil cases to recover funds that federal health care programs have paid as a result of fraud, waste, and abuse, with support designated by the Civil Division. USAOs also handle most criminal and civil appeals at the federal appellate level.

The USAOs use civil litigation to recover monies wrongfully taken from Medicare and other taxpayer funded programs, and to ensure that the federal programs are fully compensated for the losses and damages resulting from such thefts.

The False Claims Act is one of the most valued tools available for these purposes. The FCA subjects those who knowingly present false claims for payment to the government, to treble damages and civil penalties including $5,500 to $11,000 for each false or fraudulent claim filed.

USAOs receive civil fraud referrals from a variety of sources, including the federal investigative agencies that refer criminal cases, and qui tam complaints. Under the FCA, a qui tam plaintiff (a relator) must file his or her complaint under seal in a US District Court, and serve a copy of the complaint upon the USAO for that district, as well as the Attorney General. USAOs routinely assign civil assistant US attorneys to every qui tam case filed in their districts, as well as all cases referred by a law enforcement agency.

In order to maximize resources, Civil Division attorneys may become actively involved in qui tam cases that involve more than one district and potential recoveries substantially over one million dollars.

Qui tam cases often reap sizeable awards for the government and the Whistleblower. For instance, in FY 2005, as a result of a qui tam suit filed by Ven-A-Care of Florida Keys, a small home-infusion company, GlaxoSmithKline paid the federal government $140 million to settle allegations of fraudulent drug pricing and marketing that resulted in the submission of inflated claims to Medicare, Medicaid, and other federally funded programs.

The US alleged that Glaxo reported inflated prices for Zofran and Kytril, drugs used primarily to reduce the negative side effects of radiation and other cancer treatments, knowing that those prices would be used by federal programs to set reimbursement rates. Glaxo used the artificial spread between the inflated prices and its customers’ lower cost to purchase the drugs as a marketing tool.

In addition to the $140 million federal share of recovery, Glaxo also paid $10 million to reimburse state Medicaid funds.

In FY 2005, the DOJ opened 778 new civil health care fraud investigations, and had 1,334 civil investigations pending at the end of the fiscal year. In addition to these joint cases, USAOs are responsible in all other qui tam cases for investigating the relator’s allegations and, where appropriate, litigating and or settling the case. In FY 2005, the DOJ filed complaints or intervened in 266 civil health care cases.

In a case of hospital fraud, HealthSouth Corporation paid $327 million to settle allegations of fraud against Medicare and other federal health care programs. The US charged that HealthSouth, engaged in three major schemes to defraud the government.

The first, involving $170 million of the settlement, resolved false claims for outpatient physical therapy services that were not properly supported by certified plans of care, administered by licensed therapists, or for one-on-one therapy as represented.

Another $65 million resolved charges that HealthSouth engaged in accounting fraud which resulted in overbilling Medicare on hospital cost reports and home office cost statements.

The remaining $92 million resolved allegations of billing Medicare for various unallowable costs, such as lavish entertainment and travel expenses incurred for company's annual administrators’ meeting at Disney World and other claims.

The government initiated claims accounted for $251 million of the settlement, with the remaining $76 million paid out in four qui tam lawsuits.

HealthSouth also entered into a corporate integrity agreement with the HHS to prevent future misconduct.

In FY 2005, the Civil Division was allotted $15.459 million in funds to support civil health care fraud litigation. Civil Division attorneys pursue civil remedies, working closely with the USAOs, the FBI, the HHS, and other federal and state law enforcement agencies involving providers of health care services, supplies and equipment, as well as carriers and fiscal intermediaries, that defraud Medicare, Medicaid, TRICARE, the Federal Employee Health Benefit Program, and other government programs.

In FY 2005, the Division opened or filed 306 new health care fraud cases. In addition, the Civil Division also pursued 642 existing cases that remained open at the end of FY 2004.

The Civil Division litigates cases involving overcharging by hospitals, and other Medicare Part A providers; similar claims against suppliers under Medicare Part B; allegations involving state Medicaid programs; claims that doctors and others have been paid kickbacks to induce referrals of Medicare or Medicaid patients; claims of overpricing and illegal marketing of pharmaceuticals; and allegations that nursing homes have failed to provide necessary care to residents.

Among these are multi-district cases involving large health providers and suppliers that typically require coordination among federal agencies, USAOs, state Medicaid Fraud Control Units, and various other investigative organizations.

In one such case, as a result of allegations made against the Eisenhower Medical Center in Rancho Mirage, California in a qui tam lawsuit by a former employee, the Eisenhower Center paid $8 million to settle charges that it fraudulently overbilled federal health insurance programs.

Specifically, the lawsuit alleged that Healthcare Financial Advisors helped its hospital clients seek reimbursement for non-allowable costs and helped clients prepare two cost reports, one inflated to submit to Medicare, and a second one for internal use only that accurately reflected the amount of reimbursement the hospital should have received.

In another case in FY 2005, a former Florida Medicaid employee filed a qui tam suit against the University of Miami alleging that it double-billed and overcharged Medicaid through several of its outpatient clinics. The employee charged that both the University and its outpatient clinics billed Medicaid under their respective provider numbers for the same services provided to the same patients on the same date.

The Federal government and the State of Florida also alleged that the University submitted claims for a facility fee in connection with primary care services provided to Medicaid patients in circumstances where the University knew that these fees were not a covered under the Medicaid program. The University paid nearly $3.9 million to settle the charges.

The Civil Division provides critical coordination in FCA investigations alleging pharmaceutical pricing fraud. These matters can involve hundreds of manufacturers and related entities, span multiple districts and present a myriad of legal and factual issues.

Since 1999, eighteen cases of fraud by drug makers against federal health benefit programs in the pricing or marketing of drugs have been settled for a combined total of criminal and civil recoveries of $4.2 billion.

In one such case, in FY 2005, the pharmacy benefit manager, AdvancePCS, paid $138.5 million to settle charges that it exacted kickbacks, disguised as administrative fees and sales and service agreements, from drug makers in exchange for marketing their drugs to providers reimbursed by federal health programs; accepted kickbacks in the form of cash payments and rebates from drug companies in exchange for marketing their drugs to providers reimbursed by federal programs; and paid kickbacks to providers reimbursed by federal programs to ensure that AdvancePCS was selected as the PBM for the plans.

In another case, a pharmacist and former owner of King Drugs in Kentucky pleaded guilty to illegally selling drug samples to the public through King pharmacies after repackaging the samples. The pharmacist obtained the samples from various doctors and purchased them from others and then led the public to believe that the drugs were obtained and dispensed as required by law.

In resolving both the criminal and civil actions, the defendant paid more than $10.5 million to the government, relinquished his pharmacy license, agreed to permanent exclusion from all federal programs, and will serve a sentence of home confinement and 48 months of probation.

Also in FY 2005, a California man was sentenced to serve 51 months in prison and to forfeit cash proceeds from one of the largest internet pharmacy schemes ever prosecuted. To obtain drugs, customers filled out a questionnaire and paid a $35 fee for a doctor’s consultation, after which the physician would issue a prescription and the customer would receive the drugs.

But as it turns out, there was no physician involved and the drugs dispensed without a prescription were labeled as “generic” forms of Viagra, Cialis, Levitra, Propecia, Celebrex and others but were actually counterfeit drugs illegally imported into the US. The individual pled guilty to conspiring to sell counterfeit drugs, mail fraud, and illegal smuggling of drugs into the US.

The Fraud Section is responsible for handling nationwide complex health care fraud litigation and also supports the USAOs with legal and investigative guidance and, in some cases, provides trial attorneys to prosecute criminal fraud cases.

In FY 2005, the Fraud Section was involved in the investigations of hospitals, vocational rehabilitation and healthcare management services, and other health care related entities.

In one such case, the USAO for the Southern District of Mississippi, along with attorneys from the Fraud Section, prosecuted 14 individuals who participated in a scheme to create bogus prescription histories and file fraudulent claims against a $400 million settlement fund established by the manufacturer of the diet drugs Redux and Pondimin, commonly known as fen-phen, for injuries caused by the inappropriate prescription of these products.

As of September 30, 2005, a total of 17 defendants were convicted in this multi-year ongoing joint investigation.

In FY 2005, the Civil Rights Division was allotted $1.98 million in funds to support Civil Rights litigation related to health care fraud. The Division pursues relief affecting public, residential facilities and has also established an initiative to eliminate abuse and substandard care in Medicare and Medicaid funded nursing homes and other long-term care facilities.

As part of the initiative, in FY 2005, the Special Litigation Section reviewed conditions and services at 44 health care facilities in 22 states to determine whether there is sufficient information supporting allegations of unlawful conditions to warrant formal investigation.

The Section reviews information pertaining to abuse and neglect, medical and mental health care, use of restraints, fire and environmental safety, and placement in the most integrated setting appropriate to patient needs.

The Section found that conditions and practices at 2 state operated facilities for persons with mental illness and one state-operated facility for persons with developmental disabilities violate the Federal constitutional and statutory rights of the residents. Those facilities include Napa State Hospital in Napa, California, the Vermont State Hospital in Waterbury, Vermont, and the Woodbridge Developmental Center in Woodbridge, New Jersey.

The Section entered into settlement agreements with two publicly-operated nursing homes and two state-operated facilities for persons with developmental disabilities which include the Nashville Metropolitan Bordeaux Hospital in Nashville, Tennessee, the Mercer County Geriatric Center in Trenton, New Jersey, the Glenwood Developmental Center in Glenwood, Iowa and the Woodward Developmental Center in Woodward, Iowa.

In addition, the Section continued its investigations of the residential facilities for persons with developmental disabilities at the Agnews, Sonoma, and Lanterman Developmental Centers in California; Holly Center in Maryland; Fort Wayne Developmental Center in Indiana; Rainier Residential Rehabilitation Center and Frances Haddon Morgan Centers in Washington; Conway Developmental Center in Arkansas; Lubbock State School in Texas; and Bellefontaine Developmental Center in Missouri.

The Section also continued its investigations of facilities for persons with mental illness including the Metropolitan State Hospital in California; Broughton, Cherry, Dorothea Dix, and John Umstead Hospitals in North Carolina; and St. Elisabeth’s Hospital in the District of Columbia.

Finally, the Section continued its investigations of publicly operated nursing homes including the A Holly Patterson Nursing Home on Long Island, New York; the Charlotte Hall Veterans Home in Maryland; and the Laguna Honda Hospital and Rehabilitation Center in San Francisco, California.

The FBI is the main investigative agency involved in cases of health care fraud that has jurisdiction over both the Federal and private insurance programs. In FY 2005, the FBI was allocated $114 million for health care fraud enforcement and its investigations resulted in 500 criminal fraud convictions and 589 indictments and informations being filed in state and federal courts.

In addition to actively participating in the majority of investigations listed above, the FBI also launched the "Outpatient Surgery Center Initiative" to combat the growing problem of fraudulent surgeries performed at outpatient surgery centers in the Southern California area.

This nationwide scheme has drawn participants from 48 of the 50 states to have unnecessary surgery in exchange for a cash kickback or plastic surgery, and has resulted in billings to insurance companies in excess of $750 million, according to the Annual Heath Care Fraud and Abuse Control Program Report for FY 2004.

To collect intelligence on this scheme, the FBI partnered with other agencies and to date, nationwide there are pending outpatient surgery investigations in 11 field offices and more than 60 subjects have been identified.

In the latest major Whistleblower case, on September 11, 2006, the DOJ announced that the US has intervened in a qui tam suit filed in the US District Court for the District of Massachusetts against Dey Pharmaceuticals, a unit of Merck, alleging that the company violated the False Claims Act.

In its complaint, the government alleges that Dey engaged in a scheme to report fraudulent and inflated prices for several pharmaceutical products, knowing that Federal healthcare programs established reimbursement rates based on those reported prices.

The complaint alleges that Dey, from at least on or before January 1, 1993, reported prices that were more than 500% the actual sales prices on many of the drugs and that Medicare and Medicaid have reimbursed Dey's customers in excess of $500 million for the drugs.

The investigation began after the filing of the FCA suit by the Florida home-infusion company, Ven-A-Care of the Florida Keys discussed above. The lawsuit includes additional claims originally filed in the Southern District of Florida and transferred to the District of Massachusetts.

The investigation leading to the government intervention in the case was conducted by the DOJ, the USAOs for the District of Massachusetts and the Southern District of Florida and the Office of Inspector General of the HHS.

If successful, the government can recover treble damages and $5,500 to $11,000 for each false claim filed and the Whistleblower who initiated the action can receive between 15% to 25% of the amount recovered.