The Whistleblower – Part IV – Qui Tam Claims

November 4th, 2009

As reported in a front page story of today’s Washington Times in September of 2009, internationally respected whistleblower, Bunnatine Greenhouse, has issued an appeal to the U.S. Senate to pass strong protections for all federal employees. Mrs. Greenhouse was the only major Bush Administration executive to challenge the Halliburton “no bid” Iraq reconstruction contracts.  Ms. Greenhouse wrote a letter to Congress.  “We urge every American to read Bunny’s letter and to TAKE ACTION!,” said Stephen M. Kohn, NWC Executive Director.  “This is not a Democrat or Republican issue.  This is not a partisan issue. This is an issue that goes to the heart of accountability and oversight.

It is estimated that almost 10% of the U.S. annual budget is paid to persons and/or companies defrauding the government.  Some overcharge the government for products sold directly to the government, while others engage in government contract fraud, defense contractor fraud, Medicare fraud, Medicaid fraud, or other public benefit fraud. Any situation in which the government has been defrauded should be closely examined.  To minimize fraud committed against the government, Congress passed the False Claims Act. 

According to an annual report issued by the Department of Justice, approximately $1.2 billion was recovered in whistle blower claims and lawsuits filed by private citizens through their lawyers in the fiscal year October 1, 2000 to September 20, 2001, with more than $210 million of those funds being awarded to whistleblowers themselves.  The amount is continuing to grow.  It is estimated that $3.1 billions was collected from businesses defrauding the government in the year 2005.

The False Claims Act was Amended and strengthened in 1986.  The amendments broaden the definition of fraud to include submitting claims with deliberate ignorance or reckless disregard for the truth of statements made in the claim for U.S. Government spending or funds upon which the fraud claim is based.  The burden of proof that must be met by the qui tam attorney is a preponderance of the evidence, that is that the evidence presented is more likely true than not.  The 1986 amendments included provisions to protect the federal whistleblower from retaliatory action by their employer.

A person who has knowledge of fraud against the government may retain a lawyer and file a court case under seal against the company or person committing the fraud.  Following the filing of a lawsuit, the United States attorney has sixty days to investigate the allegations.  The U.S. Government intervenes in approximately 25% to 33% of all whistleblower cases.  If the U.S. attorney finds that fraud was committed, then the U.S. Government takes control of the case and either enters into a settlement or pursues the lawsuit itself. 

If the government fails to intervene, the private citizen may pursue the action independently.  If the lawyers are successful in proving fraud against the government, substantial penalties can be assessed, which can be up to 3 times the amount the defrauder stole from the government (the tax payers).  Out of damages imposed the whistleblower may receive between 10% and 30% of the recovery, in some cases recovery could be millions of dollars. 

The Whistleblower – Pharmaceutical Fraud

October 19th, 2009

In September of 2007, Bristol-Myers Squibb Company and its wholly owned subsidiary, Apothecon, Inc. agreed to pay over $515 million to resolve a broad array of civil allegations involving their drug marketing and pricing practices.  In December 2007 the Corporate Crime Reporter reported Merick to pay $670 million to settle federal and state charges that it violated the False Claims Act by engaging in nominal pricing fraud.  In 1986, more than $20 billion was paid out in fraud lawsuits brought by whistleblowers.


Pharmaceutical fraud cases represent the largest percentage of False Claims Act recoveries by the United, and qui tam relator whistleblower lawsuits.  The False Claims Act Is a federal whistleblower law which has its roots in the civil war era and allows private citizens to file actions against federal contractors and corporations who conduct fraud against the government and the public.  It is the United States’ most powerful tool for rooting out fraudulent government contracts.  With the advent of the Medicare prescription plan, even more federal tax dollars will flow into the pockets of large ruling companies illegally and in violation of current law.  In an industry with great power and profitability, there are lots of pressures upon companies to ignore federal laws designed to prevent fraud and curb costs.


Pharmaceutical fraud can take a variety of forms and involve complex issues.  The following are some example:


  • Charging the government for drugs not used and returned to pharmacy providers;
  • Marketing, promoting, and selling drugs for use other than those approved by the FDA;
  • Paying kickbacks and inducements to physicians, hospitals and pharmacists to prescribe or otherwise favor a drug;
  • Engaging in off-label marketing; and
  • Providing false data to the FDA or withholding negative data from FDA about the efficacy of a pharmaceutical drug or medical device in clinical research trials to get approval to sell and market the pharmaceutical drug or medical device.

Currently, the United States Government, along with the governments of 15 states and the District of Columbia, have joined with two whistleblowers who allege that drug manufacturer Wyeth defrauded U.S. taxpayers out of hundreds of millions of dollars.  According to the Wall Street Journal, Wyeth is accused of overcharging Medicare and Medicaid programs nationwide for purchases of it’s acid-reflux drug Protonix.  Under federal law, drug companies are required to offer prescriptions to federal aid programs at the lowest possible price.  The Wyeth suit alleges that Wyeth was offering Protonix at a 90% discount to a private hospital, while charging the federal government much higher rates.


Other drug companies that have settled qui tam lawsuits include Pfizer, TAP Pharmaceuticals, Bayer, and Schering-Plough Corp.  A federal official recently said the government has approximately 150 pharmaceutical fraud cases pending involving over 500 different drugs.


Pharmacy benefits management companies have also come under increasing scrutiny as a result of the False Claims Act.  In one of the most prominent whistleblower cases reported, Phillips & Cohen represented two whistleblowers whose qui tam lawsuits resulted in a settlement of $875 million to settle the lawsuits and related criminal charges.


If you believe you have discovered fraud, you should try to assess the magnitude of the fraud and gather whatever documentary or electronic evidence is lawfully available.  Be sure you do not violate the law or the terms of your employment agreement.  Write down the details of any meetings or events where fraud was discussed, who was present and what documents may exist that memorialize the event.  This documentation should be given to your attorney.


Keep in mind, you cannot recover in a qui tam action if another whistleblower has already filed an action based on the same documentation and information.

Whistleblower: The False Claims Act and The Fraud Enforcement and Recovery Act of 2009 – Part I

September 28th, 2009

In 2003, John Kopchinski was earning $125,000 a year selling the drug Bextra for Pfizer.  He had a baby son, and his wife was pregnant with twins.  The Gulf War veteran says that, “In the Army, I was expected to protect people at all costs.”  At Pfizer, though, he was expected to sell Bextra, even though it raised the risk of heart attacks and strokes.  After Kopchinski expressed his concerns about Bextra’s safety, Pfizer fired him.  He eventually got a new job paying $40,000 a year.

Kopchinski hired attorney Erika Kelton of Phillips & Cohen.  In 2005, Pfizer withdrew Bextra from the market.  Now Pfizer is pleading guilty to felony charges of promoting Bextra for unapproved uses.  Pfizer will pay penalties of $2.3 billion, and Kopchinski will get a $51.5 million share for filing the “qui tam” lawsuit under the False Claims Act (FCA) that helped the government collect these penalties.  Kopchinski is one of five whistleblowers sharing in the settlement.  He says that he does not expect his life to change much now, according to a news account of this settlement available from Reuters.

Crutial court decisions such as the one in the Pfizer case have assisted whistleblowers in coming forward.  In 2008, there has been rapid legislative response in the enforcement arena.  On May 20, 2009, President Obama signed into law the Fraud Enforcement and Recovery Act of 2009 (FERA).  This act authorizes substantial new funding to the Department of Justice and other federal enforcement agencies for the investigation and prosecution of offenses.  FERA amends the False Claims Act (FCA) in a manner that may increase the exposure of every company that does business with the federal government and every person or entity that supplies goods or services that are reimbursed by federal government dollars.


The FCA provides for recovery of civil penalties and treble damages from any person who knowingly submits or causes the submission of false or fraudulent claims to the United States for money or property.  Under the most commonly-enforced provisions of the statute, a person is liable for “knowingly” (1) presenting or causing the presentment of a claim for payment or approval; (2) making a “false record or statement to get a false or fraudulent claim paid or approved by the Government;” or (3) conspiring to defraud the government “by getting a false or fraudulent claim allowed or paid.”  The FCA also penalizes so-called “reverse false claims, “ in which a person “knowingly makes, uses, or causes to be made or used, a false record or statement to conceal, avoid or decrease an obligation to pay or transmit money or property to the Government.”  The FCA defines “knowingly” as having “actual knowledge” of falsity or acting in “deliberate ignorance” or “reckless disregard” of the truth or falsity of the information.  “No proof of specific intent to defraud is required.”  31 U.S.C. §3729(b).


The FCA’s qui tam provisions empower private individuals to file litigation in federal court on behalf of the government and to share in any subsequent recovery.  The FCA’s qui tam provisions provide enormous incentives for qui tam Realtors (whistleblowers) to expose fraud against the government, awarding 15-30% of settlement or judgment proceeds to Realtors, who may also be entitled to reasonable attorney fees’ and costs, which may be substantial.


FCA civil damages and penalties can be severe.  Defendants may be held liable for up to three times actual damages plus penalties between $5,500 and $11,000 per claim.  Depending on the method in which the “claims” are calculated, civil penalties may far exceed the actual damages the government sustained. 


FERA amends the definition of “claim” in a significant way.  The new definition of “claim” is:


(A)   any request or demand, whether under a contract or otherwise, for money or property and whether or not the United States has title to the money or property, that –(i) is presented to an officer, employee, or agent of the United States; or (ii) is made to a contractor, grantee, or other recipient, if the money or property is to be spent or used on the Government’s behalf or to advance a Government program or interest, and if the United States Government –


(I)             provides or has provided any portion of the money or property requested or demanded; or

(II)            will reimburse such contractor, grantee, or other recipient for any portion of the money or property which is requested or demanded. 


FCA liability may now be triggered by any false claim made to any recipient of federal money so long as the money is used to “advance a Government program or interest.” FCA realtors and the Department of Justice will now be able to push to give this provision the broadest possible interpretation.


The old FCA penalized a person who “knowingly makes, uses, or causes to be made or used, a false record or statement to conceal, avoid or decrease an obligation to pay or transmit money or property to the Government.”  31 U.S.C §3729(a)(7). FERA now defines “obligation” to include the retention of any overpayment, which opens new avenues of exposure against federal contractors or grantees for knowingly retaining government “overpayments.” 


In the past, the FCA afforded protection to “any employee who is discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and conditions of employment by his or her employer because of lawful acts done by the employee on behalf of the employee.”  31 U.S.C. § 3730(h).  FERA extends whistleblower protections beyond “employees” to a “contractor or agent” and no longer requires any prohibited retaliatory action be taken by an employer.  The FERA now reads “any employee, contractor, or agent shall be entitled to all relief necessary to make that employee, contractor or agent whole, if that employee, contractor, or agent is discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and conditions of employment.  31 U.S.C. § 3730(h).


An FCA action must be brought within six years of the date on which a violation was committed, or within three years of the date on which the government knew or should have known that a violation was committed, and in no event more than 10 years after the date on which the violation was committed.

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