Archive for the ‘Federal False Claims Act’ Category

Calling Insiders With Information on Pandemic Fraud, Waste & Abuse

Friday, April 17th, 2020

On April 16, 2020, the Honorable William M. McSwain, United States Attorney for the Eastern District of Pennsylvania, issued a sweeping request for help in identifying companies and individuals who seek to “exploit the devastating effects of the coronavirus pandemic for their own benefit.” The Philadelphia United States Attorney’s Office has a long history fighting fraud. This call for assistance in identifying coronavirus-related fraud schemes mirrors the pivotal role that whistleblowers will play following the unprecedented infusion of trillions of dollars of government funds into federal, state, and local governments to respond to the pandemic.  More funds are being considered to be disbursed by Congress.

Insiders, those with key knowledge, are critical to combatting fraud, waste, and abuse. The federal False Claims Act (FCA), 31 U.S.C. § 3729, et seq, and similar statutes on the books in dozens of states around the country, and under some municipal codes, include qui tam, or whistleblower, provisions to encourage people or companies to come forward.  Whistleblowers do not need to be individuals, and many companies have become whistleblowers.  In addition, a whistleblower need not be a U.S. citizen.

The federal FCA and most state analogs provide whistleblowers the statutory right to bring a claim in the name of the government and receive 15% to 30% of any recovery.  Whistleblowers are also protected from retaliation for their efforts. Strong anti-retaliation provisions under federal and state FCAs provide robust remedies, such as reinstatement, back pay, and double damages.

While a call for information may result in sharing information with local, state, and federal authorities, alone, it does not provide the statutory rights and protections afforded whistleblowers under federal or state FCAs.  There are significant statutory requirements that need to be met to qualify as a whistleblower who may be entitled to a share of the recovery under the FCA.  

There are government agencies and devoted prosecutorial professionals dedicated to enforcing the FCA, including for fraud related to COVID-19 (coronavirus). However, these government entities do not represent the interests of a potential whistleblower. As such, while whistleblowers are essential to supporting the endeavors of the government, to protect their own interests and facilitate the process, we recommend whistleblowers first seek competent counsel to assist them with their reporting.

See https://www.justice.gov/usao-edpa/pr/united-states-attorney-william-m-mcswain-seeks-partnerships-health-care-institutions.

Best Practices for Responding to Internal Whistleblowers

Friday, April 3rd, 2020

While most compliance programs tout policies and procedures encouraging employees and contractors to internally report their concerns, the reality is that many businesses are unprepared to respond appropriately when they receive a complaint from a whistleblower. This lack of preparation often stems from a critical failure to understand the whistleblower’s concerns and to train frontline managers and compliance professionals on how to speak with internal whistleblowers. As a result, internal whistleblowers are frequently forced to discuss their compliance concerns with managers or compliance professionals who are unsympathetic, offer excuses for the organization, or are judgmental of the whistleblower and their concerns. Not only does this deprive the organization of a critical opportunity to detect and stop compliance violations, but it also raises the risk that the internal whistleblower will file a qui tam complaint or take other action outside of the organization.

Such concerns are not merely anecdotal. According to a 2018 survey by the Ethics & Compliance Initiative, 69% of employees surveyed reported workplace misconduct they had observed.[1] While these results are encouraging, the same survey indicated that 44% of employees who reported misconduct suffered retaliation, with 72% experiencing such retaliation within three weeks of their initial report. These numbers reveal the glaring failure by many organizations to take full advantage of critical information that internal whistleblowers provide about potential misconduct.

Organizations that are truly committed to an effective compliance program are best served by adopting and training on best practices for responding to internal whistleblowers. Such best practices include (a) avoiding misconceptions about internal whistleblowers that can taint objectivity, (b) appreciating the concerns of internal whistleblowers, and (c) using communication skills that encourage internal whistleblowers to be forthcoming about their compliance concerns. Adopting these best practices, and training frontline managers on them, can transform a whistleblower program from one that just looks good on paper to one that actually enhances overall compliance.

Best practice step 1: Avoid misconceptions about internal whistleblowers

Despite the meteoric rise in the number of whistleblower lawsuits, many organizations still fail to train their frontline managers on understanding who can become an internal whistleblower and what their motives for reporting compliance concerns are. As a result, frontline managers often have misconceptions about internal whistleblowers that can lead them to discount credible compliance concerns and drive would-be whistleblowers to report their concerns to outside groups, including the government and private counsel. Given that most internal whistleblowers report their compliance concerns to their frontline managers, the need to avoid these damaging misconceptions cannot be understated.

One common misconception about internal whistleblowers is that true whistleblowers are people in senior levels of an organization who possess detailed and documented evidence of their compliance concerns. While such whistleblowers exist, it is wrong to assume that whistleblowers are all the same. In reality, whistleblowers can come from anywhere inside or outside of your organization. In my 20 years of experience working on whistleblower matters, I have seen them from current employees, former employees, independent contractors, executives, customers, patients, consultants, accountants, data miners, physicians, nurses, and even competitors. As a result, it is essential that frontline managers be trained to be aware that anyone can be an internal whistleblower and that everyone who raises a compliance concern must be treated seriously, regardless of their role within the organization.

Another common misconception is that credible whistleblowers back up their compliance concerns with documented evidence. In reality, many internal whistleblowers are focused on doing their jobs and do not have the time or training to gather evidence. The investigations are best left to compliance professionals and legal counsel. Frontline managers should be trained not to discount the credibility of an internal whistleblower merely because they lack documented support or because their report seems incomplete. Even an incomplete report of a compliance concern can provide the tip needed to begin a meaningful compliance investigation. The goal of frontline managers should be to listen to all compliance concerns without being judgmental and then report those concerns to the compliance department.

Perhaps the most damaging misconception about internal whistleblowers is that they are motivated by personal grievances or the prospect of personal gain. While these are possible motives, in my experience, the overwhelming majority of whistleblowers are motivated by the desire to right a wrong, be it improper billing or a patient safety concern. More importantly, frontline managers must treat all compliance concerns seriously, because even people with questionable motives can raise credible compliance issues. Frontline managers should be trained to focus on encouraging internal whistleblowers and learning as much information as the whistleblower is comfortable sharing about their concern. Questioning the whistleblower’s motives sends the wrong signal and can defeat the goal of gathering information that is critical to assisting the compliance department.

Best practice step 2: Understand the challenges faced by internal whistleblowers

Reporting potential misconduct committed by your coworkers takes courage and should be viewed as a sign of loyalty to the organization. Nonetheless, internal whistleblowers frequently face questions about their motives, open themselves up to criticism from their colleagues, and risk their reputation and livelihoods. For example, in a June 2018 news report on whistleblowing within the Department of Veterans Affairs, one longtime employee of the Central Alabama Veterans Health Care System told National Public Radio, “If you say anything about patient care and the problems, you’re quickly labeled a troublemaker and attacked by a clique that just promotes itself. Your life becomes hell.”[2]

Despite written policies claiming to protect internal whistleblowers, many internal whistleblowers (42% in the 2018 survey by the Ethics & Compliance Initiative) suffer some form of workplace retaliation. Obviously, retaliating against internal whistleblowers is not just wrong, but it also sends a clear signal to all future whistleblowers that they too might suffer retaliation if they report compliance concerns.

In addition to enacting and implementing clear policies prohibiting retaliation, organizations should train frontline managers on the challenges that internal whistleblowers face and how to respond to whistleblowers who express a fear of retaliation. Often, whistleblowers who report compliance concerns to their managers are looking for reassurance that they did the right thing by raising their concerns and an acknowledgment of their courage in speaking out. Training frontline managers on the challenges that internal whistleblowers face makes them better equipped to respond effectively if and when someone approaches them with a compliance concern.

Best practice step 3: Use communication skills that encourage reporting

Talking with an internal whistleblower about their compliance concerns is not just an ordinary workplace conversation. The whistleblower is often uncomfortable, because they are balancing their desire to do the right thing with concerns about retaliation and fear of losing their livelihood. As a result, frontline managers and other staff should be prepared to communicate in ways that encourage the whistleblower to share as much information as they feel comfortable with about their concerns.

Soft communication skills do not come naturally to everyone, especially in situations that involve allegations of improper and unethical conduct by their colleagues. In my experience, using the communication skills shared below can make a meaningful difference in creating a more comfortable environment for internal whistleblowers to share their compliance concerns.

Take every complaint seriously

While this may seem self-evident to some, many seem to forget this basic lesson in practice. Internal whistleblowers come in all varieties. Some can be difficult people, and others can come with a laundry list of seemingly insignificant or personal grievances that have nothing to do with compliance. However, important compliance concerns can be raised by anyone and are often raised as a part of a long list of other workplace concerns. The key is to take every concern seriously, and not to discount or prejudge a whistleblower’s complaints for personality or other reasons.

Speak the reporter’s language

While not always possible, it is best if the person speaking with the internal whistleblower is familiar with the medical or billing areas at issue and thus can speak the same language as the whistleblower. For example, if a whistleblower is concerned about anesthesia billing, it is best if the person speaking with them has experience and knowledge with that subject matter, thus being in the best position to understand the whistleblower’s concerns and able to ask intelligent follow-up questions.

Don’t offer excuses or play down the compliance concern

The primary goal in speaking with an internal whistleblower should be to learn as much information as possible without passing judgment or minimizing their concerns. In our everyday lives, we often confront stressful situations by attempting to play down fears and minimize concerns. However, when speaking with an internal whistleblower, following that path can have a negative effect. Internal whistleblowing takes great courage, and the whistleblowers are looking for someone to treat their concerns seriously. As a result, it is best to listen to the whistleblower without offering excuses or playing down the potential compliance concern.

Be patient and don’t rush the whistleblower

Understanding that whistleblowing is stressful, it is important not to rush the whistleblower to share everything they know at once. It may take several meetings before the whistleblower feels comfortable with the person they are speaking with and believes that their concerns will be taken seriously. Therefore, depending on the issue (such as those that do not involve a risk to patient safety), the better approach is to be patient and to keep the door open to multiple meetings or conversations with the whistleblower to discuss their concerns.

Be sensitive to the whistleblower’s concerns

Along with not rushing the whistleblower, it is important to be sensitive to the their concerns and be prepared to answer their questions about the reporting process. In my experience, whistleblowers will often ask questions such as:

  • Will my identity be protected?
  • Will I be protected from retaliation?
  • Can I be transferred to another department?
  • Will I get in trouble?
  • Will I get any feedback after my concerns are investigated?

Each organization may have its own policies on such questions and may not want frontline managers to provide substantive answers. However, frontline managers should at least learn how to respond to such questions—even if that response is to defer them to human resources or compliance—to avoid a deer-in-headlights look that can convey to the whistleblower that the frontline manager cannot be trusted with seriously pursuing their compliance concerns.

Express appreciation

Regardless of whether the concern raised by the whistleblower is a compliance issue or not, it is important to treat the whistleblower with respect and to express appreciation for the courage it took to raise their concern. A simple expression of gratitude can go a long way into building trust with an internal whistleblower. Also, it sends a signal that the organization values those who report compliance concerns, and that its whistleblower policy is more than words in a manual.

Best practice step 4: Avoid communication pitfalls that discourage reporting

Just as there are best practices that can encourage whistleblowers, there are some common communication pitfalls that can discourage whistleblowers from sharing details about their compliance concerns. Those pitfalls include:

  • Pressuring the whistleblower to prove their concerns with documents;
  • Pushing the whistleblower to disclose their identity to colleagues or management or to meet with others to repeat their concerns;
  • Signaling a reluctance to escalate the whistleblower’s concerns to the compliance department;
  • Suggesting that the concern, if accurate, could be bad for the organization, colleagues, or the whistleblower;
  • Signaling that you don’t believe the whistleblower or are skeptical of their motives.

Conclusion

Internal whistleblowing can add a vital element to any compliance program. Encouraging whistleblowers can provide valuable insight into unknown compliance issues and can enable an organization to proactively address those issues, thereby minimizing the risk of external investigations and litigation. Training frontline managers on best practices for responding to internal whistleblowers is a critical element that often goes overlooked. Organizations that add such training to their compliance efforts will be better prepared and will ultimately increase the effectiveness of their compliance programs.

Takeaways

  • Compliance programs are vulnerable if they fail to train managers on how to communicate with internal whistleblowers.
  • Managers often have misconceptions about internal whistleblowers that can lead them to discount credible compliance concerns.
  • Managers should be trained on best practices to encourage internal whistleblowers to share information regarding their compliance concerns.
  • Using soft communication skills that demonstrate the organization takes every concern seriously and is committed to compliance can make a meaningful difference to internal whistleblowers.
  • Managers should avoid sending negative signals by pressuring internal whistleblowers, prejudging their concerns, or questioning their motives for reporting.

1 Ethics & Compliance Initiative, The State of Ethics & Compliance in the Workplace, March 2018, available upon request at www.ethics.org.

2 National Public Radio, “For VA Whistleblowers, A Culture of Fear and Retaliation,” June 21, 2018, https://n.pr/2GZ7C1A.

Copyright 2020 Compliance Today Magazine, a publication of the Health Care Compliance Association (HCCA).

Click here to view the article

Who Is Keeping Their Eyes on Government Spending at Home and Abroad?

Wednesday, April 1st, 2020

In the midst of the COVID-19 pandemic, businesses and individuals around the world are rising to the occasion and ordinary people are doing extraordinary things. We have seen first responders, emergency room physicians, nurses, grocery store workers, and mail carriers go above and beyond their call of duty. One Pennsylvania manufacturer of major league baseball uniforms donated millions of dollars of fabric and labor and converted its operations to medical masks and gowns for healthcare workers; recognizing the fragile psyche of taxed cities, the Phillies’ pinstripes will stay in Pennsylvania and the Yankees’ will go to New York. However, parallel to these uplifting endeavors, there is a darker side of this historic pandemic – the underbelly of society seeking to take advantage of national, local, and state governments dealing with a crisis that is unprecedented in its medical, economic, and social impact.

The public, employees of providers of essential services, and government agencies need be on the lookout to detect and report fraud related to COVID-19. Several government agencies have vocalized this call for vigilance including Europe’s Interpol, which recently announced an investigation of at least 30 large-scale fraud schemes in Europe and Asia, and The United States Department of Justice. The Department of Health and Human Services Office of Inspector General (HHS-OIG) has also issued a COVID-19 Fraud Alert to warn against unscrupulous suppliers of testing kits and unapproved treatments, and the Treasury Department has alerted home-bound taxpayers to be vigilant when receiving offers of tax assistance in the midst of the pandemic.

Providers who bill the government or recipients who will be paying for goods and services with government funds are particularly susceptible to fraud schemes.  Essential service providers in the financial and healthcare sector including industrial cleaning companies called to disinfect public places, healthcare suppliers setting up makeshift hospitals around the country, and construction companies will need to have in place appropriate audit processes for both products and labor to maintain additional vigilance during these times.

Congressional Action

The U.S. Congress recently enacted legislation, the Coronavirus Aid, Relief and Economic Security (CARES) Act, which will release $2 trillion in federal funds into the economy at every level including corporations ($500 billion), state and local governments ($339.8 billion), public health ($153.5 billion), and small businesses ($377 billion). It should be noted with this disbursement of funds that not all U.S. dollars will land within the borders of the United States; many suppliers have corporate headquarters around the globe. As supplies and personnel are shifted from areas where COVID-19 is less of a threat, to U.S. cities over the next weeks (or dare we say months), providers based in other countries may be receiving these government dollars. Extraordinary people in ordinary places will also need to come forward to report fraud, waste and abuse in these unprecedented times.

The False Claims Act

The federal False Claims Act, more than two dozen state statutes that mirror that law, and even some municipal statutes have frameworks built in for whistleblowers to bring fraud, waste, and abuse to the attention of government prosecutors.  There are processes in place to facilitate the filing of false claims even during the pandemic. It was in the midst of the great Civil War that the False Claims Act came into existence to respond to unscrupulous suppliers who provided sawdust instead of rifles to Union soldiers.  Our first responders to COVID-19 deserve no less.

If you are aware of any person, corporation or entity that you think may be violating the Federal False Claims Act or a State False Claims Act, you should contact an attorney who can assist you in evaluating your potential claim. Be careful not to discuss the matter with anyone other than an attorney. CONTACT US TODAY.

Relator Swap Leads to Case “Droppa” Under the DRUPA

Thursday, March 19th, 2020

The perils of substituting relators in the midst of a qui tam were the highlight of this week’s decision by the Delaware Supreme Court on certification from the Third Circuit Court of Appeals in United States v. Sanofi-Aventis United States Llc, No. 256, 2019, 2020 Del. LEXIS 97 (Mar. 17, 2020), on certification from In re: Plavix Marketing, Sales Practices and Products Liability Litigation, 19-2472 (3d Cir. June 12, 2019) [hereinafter Certification].

Three individuals (two physicians and a Sanofi sales representative) formed a Delaware limited liability partnership to act as Relator, that is, “to file and prosecute” a whistleblower action under the federal False Claims Act (“FCA”), 31 U.S.C. §3729 et seq, and state analogs, against several defendants.  Sanofi-Aventis 2020 Del. Lexis at *2. The three individuals’ partnership agreement contained the following provision: “the Partnership shall not be a separate legal entity distinct from its Partners.” Id. at 4. The Third Circuit explained the likely reason for this provision: if the original partnership was a separate legal entity, the fact that it did not exist at the time the alleged fraud occurred would prevent it from being an “original source” with direct knowledge of the fraud under the pre-amendment FCA. Sanofi-Aventis 2020 Del. Lexis at *4-5, citing In re: Plavix Marketing, Sales Practices and Products Liability Litigation (No. II), 315 F.Supp. 3d 817 at 381(D.N.J. 2018), appeal docketed, No. 19-2472 (3d Cir. July 3, 2018) [hereinafter Opinion].[1]

Nine days after its formation, the relator partnership filed the qui tam complaint against Sanofi-Aventis U.S. LLC, Sanofi-Aventis U.S. Services, Inc., Aventis, Inc., Aventis Pharmaceuticals, Inc., Bristol-Myers Squibb Company, and Bristol-Myers Squibb Pharmaceuticals Holding Partnership.  In their complaint, the relator partnership alleged that each of the original partners was an  “original source” of the information upon which their allegations were based. While the case was pending, one of the partners left the partnership and was replaced by another physician partner. The District Court, then, “sua sponte, requested that the parties brief the question of whether JKJ was a proper relator capable of continuing the litigation in light of the replacement.” Sanofi-Aventis 2020 Del. Lexis at *6. The defendants moved to dismiss the reconstituted partnership’s amended complaint, arguing that the amended complaint violated the first-to-file rule under the FCA because the earlier complaint has been filed by a separate relator. The United States District Court for the District of New Jersey agreed with the defendants and dismissed the case. Opinion at 836. Relators appealed to the Third Circuit, which later certified three questions to the Supreme Court of Delaware to determine unsettled issues under Delaware law. Certification.

On certification from the Third Circuit, the Supreme Court of Delaware addressed three legal questions, which had arisen on appeal. Sanofi-Aventis 2020 Del. Lexis at *10. The Delaware court, in agreeing with the defendants’ theory, found: (1) the change in membership of the limited liability partnership relator created a new partnership and caused a dissolution of the original partnership under the Delaware Revised Uniform Partnership Act (DRUPA) because the partnership agreement provided that the partnership was not a distinct legal entity from its partners. Id at *34-35; (2) although the Court held that the “new” partnership filed the amended complaint, the statement of undisputed facts provided to the Delaware Court did not resolve the inquiry as to whether the new partnership possessed the qui tam lawsuit (“litigation asset”). Id at 35-36; and (3) the original partnership could not continue to bring the qui tam “action as a part of its winding up process, because to do so would be inconsistent with …the Partnership Agreement, and because the action is in its beginning phases and is the sole purpose for which [the original partnership] was established.” Id. at 36.

Questions of substituting or adding relators, dismissing earlier actions, and forming corporations to act as relators are fact-specific and often dependent on state law. This case is another example of the complexities of the FCA’s  so-called “first-to-file” rule which provides:  “no other person other than the Government may intervene or bring a related action based on the facts underlying the pending action.” 31 U.S.C. § 3730(b)(5). This provision bars a later case based on the essential facts of a previously-filed whistleblower case involving the same elements of a fraud scheme alleged in an earlier-filed FCA case.


[1] Under the pre-amendment language an “Original Source” must “either (i) prior to a public disclosure under subsection (e)(4)(a), has voluntarily disclosed to the Government the information on which allegations or transactions in a claim are based, or (ii) who has knowledge that is independent of and materially adds to the publicly disclosed allegations or transactions, and who has voluntarily provided the information to the Government before filing an action under this section.” 31 U.S.C. § 3730(e)(4)(B).

Can I Just Be John Doe? A review of remaining anonymous in False Claims Act cases

Thursday, January 23rd, 2020

There is strong appeal in the concept of remaining anonymous for many whistleblowers but unless you can prove both a fear of severe harm, and that the fear of severe harm is reasonable, two recent Circuit Court decisions illustrate how unlikely it is that you can remain in the shadows and demonstrates the risks inherent to that pursuit.

Janssen Therapeutics

In the first of the two cases, a Jane and John Doe filed a qui tam complaint under their actual names against Janssen Therapeutics, Janssen Products, LP, and Johnson & Johnson, Inc. (“Janssen Therapeutic Defendants”)[i]. In the complaint, Jane and John Doe alleged that the Janssen Therapeutic Defendants submitted false claims by promoting off-label use of two HIV medications.

After two years of investigating, Jane and John Doe (“the relators”) were informed that they were not the first-to-file an FCA lawsuit against the Janssen Therapeutic Defendants relating to the allegations in their complaint. As a result, the relators amended their complaint under seal filing the exact same complaint only replacing their actual names with the pseudonyms Jane and John Doe.

After the relators filed their amended complaint, the government filed a ‘Notice of Election to Decline Intervention’ and requested that the amended complaint and the Notice of Election to Decline be unsealed but that all other contents of the docket remain under seal. The District Court granted the motion and the original complaint remained under seal. The relators, subsequently, voluntarily dismissed their complaint.

The Janssen Therapeutic Defendants moved to unseal the original complaint and, applying the test for proceeding with a litigation anonymously set out in Doe v. Megless[ii],the District Court ordered the original complaint to be unsealed after 45 days.

Under the Megless test, a litigant must show “both a fear of severe harm, and that the fear of severe harm is reasonable.” Further, Megless indicates that once a litigant makes this initial showing, the “district court should balance a plaintiff’s interest and fear against the strong interest in an open litigation process.”[iii]

On December 27, 2019, the Third Circuit overturned the lower court’s unsealing order since the lower court applied the wrong standard. The Third Circuit stated that the appropriate standard was not the Megless test, but rather the standard for unsealing court records established in In re Cendant Corp.[iv] In re Cendant Corp. sets out that in order to overcome the presumption of access in relation to a judicial record, a plaintiff must show that its interest in secrecy outweighs that presumption.

Since the relators had already voluntarily dismissed their complaint, the Third Circuit remanded the case and instructed the District Court to “consider whether Janssen’s motion is a vehicle for improper purposes, in which case the Original Complaint may appropriately remain under seal.”[v] Even after the relators dismissed their complaint, and were no longer pursuing the litigation, only improper motives by the Defendants could overcome the presumption of openness in a court proceeding.  

In the second case which demonstrates the risks in attempting to proceed anonymously, we explore another matter related to the Janssen companies…

Volkhoff and the Janssen Defendants

On September 16, 2016, Volkhoff, LLC (“Volkhoff”), a Delaware limited liability company, filed a qui tam complaint alleging FCA violations by Janssen Pharmaceutical N.V., Janssen Pharmaceuticals, Inc., Janssen Research & Development, LLC, Johnson & Johnson, and Ortho-McNeil (“Janssen Defendants”).[vi] In the complaint, Volkhoff alleged that the Janssen Defendants fraudulently and unlawfully marketed their medications.

Neither the United States nor any state elected to intervene in the complaint, allowing Volkhoff to proceed with the original complaint on its own. The Janssen Defendants filed a motion to dismiss the Original Complaint. After the Janssen Defendant’s moved to dismiss the Original Complaint, Volkhoff did not oppose the motion, but rather, filed a First Amended Complaint (“FAC”) with the same allegations as the original complaint only replacing “Volkhoff” with “Jane Doe,” a natural person.

The FAC did not mention Volkhoff, nor did it mention Volkhoff’s relationship to Jane Doe. Further, in the filings, Jane Doe and Volkhoff acknowledged that the replacement of Volkhoff with Jane Doe was a tactical decision aimed at avoiding the Janssen Defendants’ challenge to the Original Complaint’s FCA retaliation claim.

The Janssen Defendants moved to dismiss the FAC. The District Court dismissed the FAC on the grounds that the District Court lacked subject matter jurisdiction since Jane Doe was not the first-to-file, because her allegations were the same as Volkhoff’s first-filed complaint. Since Volkhoff and Jane Doe were separate legal entities and the FAC failed to disclose the relationship between Volkhoff and Jane Doe, Jane Doe was statutorily precluded from pursuing her FCA claims.

The District Court also dismissed Jane Doe’s FCA employment retaliation claim because she failed to demonstrate a need for proceeding anonymously. Volkhoff LLC appealed but failed to include Jane Doe as a party on the appellate notice.

Since Volkhoff and Jane Doe are separate legal entities and Volkhoff chose not to meaningfully involve itself in the district court proceedings, Volkhoff failed to meet the requirements for appellate jurisdiction. Jane Doe also failed to meet the requirements for appellate jurisdiction since she was not named on the appellate notice. As a result, the Ninth Circuit dismissed Volkhoff’s appeal for lack of jurisdiction.

Conclusion

As the cases involving Janssenand Johnson & Johnsondemonstrate, the ability to successfully pursue an FCA complaint anonymously, is extremely limited and many of the statutory bars in the FCA statute, such as the first-to-file bar, may be implicated. There may be several reasons a relator may want to file an FCA complaint anonymously, but the benefits of that choice almost never outweigh the risks. A relator must have a genuine need for proceeding anonymously.

If you are aware of any person, corporation or entity that you think may be violating the Federal False Claims Act or a State False Claims Act, you need an experienced attorney who can assist you in evaluating your potential claim and help you file it in a way that will give you the best success. Please do not hesitate to contact us today.


[i] United States v. Janssen Therapeutics, No. 19-1376, 2019 U.S. App. Lexis 38780 (3d Cir. Dec. 27, 2019) (“Janssen Therapeutics”)

[ii] Doe v. Megless,654 F.3d 404 (3d Cir. 2011)

[iii] Doe v. Megless,654 F.3d at 408

[iv] In re Cendant Corp., 260 F.3d 183 (3d Cir. 2001). 

[v]. Janssen Therapeutics at *5

[vi] United States ex rel. Alexander Volkhoff, LLC v. Janssen Pharmaceutica N.V., No. 18-55643, 2020 U.S. App. LEXIS 70 (9th Cir. Jan. 2, 2020)

What’s It Like Blowing the Whistle in Ukraine?

Thursday, January 16th, 2020

What Happened

On January 1, 2020, Amendments to the Law of Ukraine On Prevention of Corruption (“Amendments”) came into effect that introduced groundbreaking protections for whistleblowers in Ukraine that rival the protections offered under the United States False Claims Act (“FCA”).

The Motivation

Ukraine has suffered through a longstanding history of corruption. In the United States Agency of International Development’s 2019-2024 Country Development Cooperation Strategy for Ukraine, Ukraine was categorized as the most corrupt country in Europe. In attempt to change its global perception and become a member of the European Union, the Ukrainian government has implemented reforms targeted towards anti-corruption and transparency. The recent enactment of the Amendments is a significant step towards fighting the country’s deep-rooted corruption.

Who Can Be A Whistleblower in Ukraine?

According to the Amendments, a whistleblower is defined as an individual who reports possible acts of corruption, or corruption-related offenses, that the whistleblower has firsthand knowledge of through their professional, economic, social, scientific, professional or educational activities. To qualify as a whistleblower, the individual must present reliable information that is not publicly available that supports their report of corruption.

What Protections Can a Whistleblower Receive?

The Amendments permit the whistleblower to anonymously report acts of corruption and protect the whistleblower’s confidentiality. The Amendments also protect the whistleblower and the whistleblower’s family from retaliation of any kind including, but not limited to, physical violence, adverse employment actions, and civil and criminal liability. Under the Amendments, the whistleblower and the whistleblower’s family are entitled to free legal assistance, psychological aid, reimbursement of expenses, and reimbursement of legal fees. The Amendments also provide remuneration of up to 10% in cases where the damage to the state is more than ₴10 million Ukrainian Hryvnia, UAH (approximately $417,219.70 United States Dollar, USD). The percentage a whistleblower receives is largely based upon the importance of the whistleblower’s information.

How to Blow the Whistle in Ukraine

The Amendments do not prescribe a particular way in which the whistleblower must report acts of corruption. The whistleblower may choose to make their report to the National Anti-Corruption Bureau of Ukraine, National Agency, and other specially authorized entities in the sphere of corruption via the agencies’ telephone number, website, or designated email address. The whistleblower may also report acts of corruption to their employer, trade unions, public organizations, governmental agencies, journalists, and the media.

All government agencies, state-owned businesses, and select private companies that participate in public procurement for contracts must implement internal reporting channels, assist employees with reporting, define internal procedures related to reporting and reviewing complaints, and introduce a culture of reporting possible corruption and related incentivizes.

The Take Away The Amendments have been compared by many to the FCA. While both laws provide vast protections and potential remuneration to the whistleblower, the potential award for the whistleblower under the FCA is 30% of the government’s recovery while the potential award under the Amendments is only 10%. Given Ukraine’s longstanding history of corruption, only time will tell if the protections and minimum monetary award offered under the Amendments will be enough to encourage Ukrainians to join the fight against corruption and blow the whistle.   

International Whistleblowing Legislation and America’s False Claims Act

Monday, January 6th, 2020

This is the second part of a two-part article.

In the first of this two-part series, we discussed the success of the United States’ federal False Claims Act (FCA),[1] the rise of international whistleblowers through a study of the Michael Epp case,[2] and what global companies need to do to prepare. In this follow-up, we review exemplary international whistleblowing laws that have been recently enacted and what they mean for global corporate compliance. Our review is not exhaustive but reflects a fair cross section of non-American whistleblowing laws.

Why aren’t international whistleblower laws modeled on the FCA?

Over the last several years, a number of foreign countries have passed whistleblower laws. Implemented purportedly to bolster anti-corruption efforts around the globe, these international whistleblower laws, when compared to the FCA, lack the hallmark elements of a strong and effective whistleblower program.

First, most of these international laws provide no financial incentive to whistleblowers. Of the handful of countries that do provide a monetary award, many cap recoveries at levels that may be deemed inconsistent with the risk taken by whistleblowers. Second, although most laws provide some confidentiality and anti-retaliation protections to whistleblowers, a number require whistleblowers to report in “good faith,” “without malice or negligence,” and based on a “reasonable suspicion” of misconduct, which are fairly subjective standards. Some actually expose whistleblowers to liability if their reports are deemed untrue or not in the public interest. Although the defense bar and industry welcome these prefiling requirements, these limitations do little to promote whistleblowing outside the United States. Third, very few offer whistleblowers financial compensation for retaliatory actions taken against them. We could only find one, the European Union (EU) Whistleblower Directive, that provides for payment of whistleblowers’ attorney fees and costs in litigating retaliation claims. Fourth, unlike the FCA, these laws often lack a clear and distinct regulatory authority or prosecutorial agency in charge of enforcing specific whistleblower laws.

By comparing a broad cross section of these international whistleblower statutes to the FCA, a clear pattern emerges. These laws lack the teeth and scope of the FCA.

Whistleblowing English style

The United Kingdom (UK) was one of the earliest countries to enact whistleblower protection, defined in the Public Interest Disclosure Act of 1998.[3] This act includes both confidentiality and anti-retaliation provisions and provides for financial compensation for retaliatory actions. Notably, there is no cap on the amount of retaliation award. But, unlike the FCA, the Public Interest Disclosure Act does not provide any financial incentives solely for whistleblowing. Whistleblowers must demonstrate that they reasonably believe that their disclosures were made in the public interest to receive anti-retaliation protection. The lack of a monetary incentive and the requirement that a whistleblower reasonably believes that disclosure is in the public interest have led to a lack of any meaningful impact.

Whistleblowing Italian style

Italy first enacted protections for whistleblowers in the public sector in 2012. But it was not until 2017 that Italy extended these protections to whistleblowers in the private sector, the first set of whistleblower private-sector protections ever passed in Italian legislative history. Under the Italian whistleblower laws, entities are prohibited from discriminating or retaliating against whistleblowers, and can be sanctioned if they do. Whistleblowers’ confidentiality is also protected. Despite this recent revitalization, these laws fail to offer any financial incentives for whistleblowing. In addition, whistleblower protection does not attach to reports that are slanderous, defamatory, or maliciously or negligently unfounded. To date, Italy has not fully embraced the concept of private attorneys general vetting out fraud for profit.

Whistleblowing Irish style

In July 2014, Ireland’s Protected Disclosures Act (PDA)[4] came into effect. The PDA established whistleblower protections for both public- and private-sector employees for the first time in Irish history. The PDA provides whistleblowers with both confidentiality and anti-retaliation protections, including immunity for making a report. It also provides whistleblowers with a private right of action and compensation for retaliation. There is no monetary award for blowing the whistle, and any disclosure must first be made to the whistleblower’s employer with a reasonable belief that the disclosure is in the public interest. Ironically, Ireland is home to many of the largest American-controlled companies in the world. Although the PDA includes a private right of action for retaliation, without any financial incentive, it is unlikely that whistleblowers in Ireland will pursue the PDA.

Whistleblowing French style

In 2016, the French Parliament enacted Sapin II: the law on transparency, the fight against corruption, and the modernization of French economic life. For the first time in French history, this law afforded protection to whistleblowers. In fact, the concept is so new that the Council of Europe issued a 2014 pamphlet explaining what whistleblowing is.[5] Unlike the FCA, however, Sapin II offers no financial reward to whistleblowers and actually prohibits any monetary award. Sapin II also defines a “whistleblower” to be one who reveals or reports in a “selfless manner” and in “good faith.”

Although whistleblowers in France do not receive any monetary award, Sapin II does offer protections to whistleblowers, including confidentiality, protection from retaliation, and a promise of no punishment for reporting a violating company. A whistleblower, however, must report the violation to their employer first as a condition of moving forward, a concept eschewed long ago in the FCA. Although Sapin II signifies the French government’s intent to eliminate corruption, and it seems to be evolving legislation, the lack of any financial incentives and the requirement that a whistleblower report in a selfless manner and in good faith are unlikely to motivate French whistleblowers.

Whistleblowing Dutch style

In 2016, the Dutch Whistleblowing Act became law. It requires all employers with 50 or more employees to implement internal reporting procedures and bans retaliation against employees who report fraud. The act also created the House for Whistleblowers to perform both advisory and investigative functions. Again, although whistleblowers in the Netherlands receive identity and retaliation protections, the Dutch act offers no monetary award. Additionally, whistleblowers must both have a reasonable suspicion of wrongdoing and first report wrongdoing internally to their employers in order to be protected.

Whistleblowing German style

In 2016, Germany amended the German Act of Financial Services Supervision. For the first time in the country’s history, it created whistleblower protections for employees of all companies. Prior to 2016, whistleblowers in Germany faced civil and criminal liability under German labor laws for reporting alleged wrongdoing. Whistleblowers in Germany are now entitled to confidentiality protections, along with anti-retaliation protections. However, this protection attaches only so long as the whistleblowers do not intentionally or negligently submit an untrue disclosure. Finally, there is no monetary award in German law. Accordingly, Michael Epp, who received $16 million under the FCA, would have received nothing under German law, had he chosen that alternative. Although Germany has progressed from the days of criminal and civil liability for blowing the whistle, it still has a long way to go to spur German whistleblowers to come forward.

Whistleblowing Canadian style

The Canadian provinces have taken varying and innovative approaches to whistleblower laws. In 2016, the Ontario Securities Commission (OSC) adopted a whistleblower program that included financial rewards for whistleblowers for the first time in Canadian history. Ontario’s program is one of the very few that offers a financial incentive to whistleblowers. By including this financial incentive provision, the OSC confirmed that the key to a successful whistleblower program is financial award, as in the American system.

The amount of a whistleblower award is discretionary. It ranges from 5% to 15% of the total judgment, but it is capped at $5 million. Opponents of this cap believe it may prevent high-level executives from blowing the whistle. Multiple factors determine a whistleblower’s award, including the timeliness and importance of the report, the whistleblower’s cooperation, and any involvement by the whistleblower in the reported misconduct. Whistleblowers only receive a reward if their report results in an enforcement action of more than $1 million. Three recent awards totaling $7.5 million were the first of their kind by a Canadian securities regulator and have garnered a fair amount of attention; however, little information about the cases or the whistleblowers has been revealed.

As with the FCA and almost all the international whistleblower laws, the Ontario law protects whistleblowers against retaliation and offers some measure of confidentiality. Whistleblowers may also file a civil suit against their employer for retaliation, and remedies may include reinstatement and double damages, similar to the FCA. And, as in the FCA, a Canadian whistleblower can be someone other than a company employee, such as a supplier, contractor, or client. Since the Ontario law’s enactment, more than 200 tips have been received by the OSC, making it one of the more currently successful international whistleblower programs. The OSC has made it easy for interested whistleblowers to submit information, via an online web form.[6]

Although the provinces of Quebec and Alberta also recently implemented whistleblower programs, neither offers any financial incentives. There are other interesting differences as well. Of note, under the Alberta Securities Act,[7] a whistleblower is defined as an “employee.” Although this term is widely interpreted to include contractors and affiliates, it does not sweep as wide as the FCA or Ontario law. Quebec’s law recently came under fire for not providing anti-retaliatory protections after a government employee whistleblower was fired after blowing the whistle.[8] In sum, these other Canadian provinces should model themselves after Ontario if they want to truly encourage whistleblowers.

Whistleblowing within the European Union

In April, the European Parliament overwhelmingly approved (591 for, 29 against, 33 abstentions) the EU Whistleblower Directive (Directive), which provides universal whistleblower protections for all potential reporting persons located within EU member states. Interestingly, these protections apply whether or not the reporting person is a citizen of an EU member state. Any EU member state without a whistleblower law (18 of the 28) has two years within which to enact one. This will be an interesting process to watch unfold.

The Directive does not include any financial incentive to whistleblowers. Thus, its potential impact is questionable. Without a comprehensive system of whistleblower protections, many alleged violations may go unreported. Although the Directive requires that whistleblowers reasonably suspect that misconduct occurred, it protects whistleblowers from civil and criminal liability if they had reasonable grounds to believe the disclosures were necessary. The Directive also provides compensation for retaliation, such as reinstatement, lost wages, and damages, including attorney fees.

The Directive has motivated at least one EU country to progress in enacting whistleblower laws. In June, a proposed bill was submitted to the Spanish Parliament that would make Spain the first EU country to apply the Directive. Previously, Spain did not have any specific whistleblower legislation. Of note, the legislation was proposed by Spanish anti-corruption activist group Xnet,[9] not by the legislature itself. In the coming years, it will be interesting to see who drives EU countries to enact whistleblower laws—activist groups, such as Xnet, or the country’s legislators.

In addition to parts of Canada, only a small handful of countries follow the FCA in providing financial incentives for whistleblowers to come forward. For example, in South Korea, the Act on the Protection of Public Interest Whistleblowers became effective in 2011, offering whistleblowers confidentiality and an award of 4% to 20% of recovered funds, up to $2 million.[10] The Ghanaian Whistleblower Act includes a bounty of 10% of the recovered amount or an amount determined by the attorney general, in consultation with the inspector general of police. It also gives whistleblowers the right to apply for police protection if they reasonably believe that they, their families, or their properties are endangered.[11] Slovakia’s newly established Office for the Protection of Whistleblowers, which began operating in March, provides protection to whistleblowers—along with a reward for those reporting on unlawful activities.[12]

Strong anti-bribery laws but weak whistleblower laws

Interestingly, Europeans have demonstrated a clear appetite for passing strong anti-corruption and anti-bribery statutes, such as the U.K. Bribery Act.[13] Violations of the U.K. Bribery Act result in a maximum of 10 years’ imprisonment, along with an unlimited fine and the potential for property confiscation. The act has been characterized as one of the toughest anti-corruption statutes in the world, given its strong penalties and broad extraterritorial reach. Many other EU member states have enacted anti-bribery laws with steep fines.

For example, in the Netherlands, active bribery is an offense pursuant to sections 177 and 178 of the Dutch Criminal Code (the DCC),[14] and passive bribery is an offense pursuant to DCC Sections 363 and 364. Offering or receiving a bribe carries a maximum sentence of six years or a maximum fine of EUR 82,000. Judicial bribery carries a maximum sentence of nine years, or even 12 years if the bribery occurs in criminal proceedings, and a maximum fine of EUR 82,000. Both individuals and entities can be held criminally liable with maximum fines of up to 10% of a company’s annual turnover. Austria’s Criminal Code Amendment Act makes public sector bribery (“Bestechlichkeit”) punishable by imprisonment for terms varying with the amount of advantage obtained (e.g., if the advantage is greater than EUR 50,000, up to 10 years’ imprisonment). For offering a commercial bribe, corporate entity violations are punishable by fines of 15% to 20% of annual revenue.

France’s newly invigorated Sapin II, which focuses on how to prevent bribery and corruption, recognizes the importance of whistleblowers in rooting out fraud. The French authorities have been very vocal in promoting these efforts. Under Sapin II, larger public and private sector entities must adopt an internal whistleblowing system that ensures alerts are documented and addressed. And companies failing to implement measures to prevent and detect corruption can be fined up to EUR 1,000,000 for the breach—even if misconduct has not actually occurred. Directors can be fined up to EUR 200,000.

In Germany, penalties include five years’ imprisonment (10 years’ imprisonment in severe cases involving a member/official of a public body), a criminal fine, and disgorgement. Thus, European legislatures understand that in order to effectively deter companies and individuals from engaging in bribery and corruption, the law must have teeth.

For example, in 2012 the Government of Kazakhstan adopted “Rules on rewarding those who disclose facts of corruption offences or otherwise assist in the fight against corruption.” Under the rules, individuals who report corruption can receive remuneration from the government if the reported facts are confirmed and a court sentences the target of the report.[15] But when it comes to whistleblower statutes, the laws are mostly ineffective. Philosophically, many countries have not embraced the concept or benefits of private whistleblowers. With the number of international whistleblower laws growing, however, only time will tell if they will measure up to the FCA without identified financial incentives and stringent whistleblower protections.

Conclusion

The 1986 amendments to the American FCA revealed the untapped potential of whistleblowers to uncover fraud, waste, and abuse and to be the engine leading the billions of dollars in recoveries. We believe the confluence of increasingly global business, coupled with worldwide laws that normalize whistleblowing without financially incentivizing it locally, has set the stage for the next big wave of FCA development: a rise in international whistleblowers.

To avoid being caught in the growing riptide, US companies with worldwide operations must take compliance seriously and manage their FCA risk globally. As more international whistleblowers come forward, a legitimate global compliance program must have effective procedures for employees and others to report concerns and provide protections against retaliation.

Acknowledgments

The authors acknowledge and express their thanks to Erica Jaffe, Esq., for her contributions to this article. Jaffe is an associate in Morgan Lewis’s litigation practice in Philadelphia. They also thank Pamela Coyle Brecht, Esq., chair of Pietragallo’s Qui Tam/False Claims Act National Practice Group, for her insight, scholarship, and assistance with this article.

About the authors

Marc S. Raspanti, Esq., founded both the firm’s White Collar Criminal Defense Practice Group and its National Qui Tam/False Claims Act Practice Group. He previously served as a Philadelphia prosecutor. Meredith S. Auten, Esq., concentrates her practice on defending FCA investigations and related fraud litigation. Raspanti and Auten serve as longstanding co-chairs of the American Bar Association National Qui Tam Subcommittee.

Takeaways

  • Many foreign countries have passed whistleblower laws in the last few years.
  • Unlike the False Claims Act, most of these international whistleblower laws lack financial incentives and anti-retaliation protections to encourage whistleblowing.
  • These international whistleblower laws lack the punch of international anti-corruption laws.
  • Global business and worldwide laws that normalize whistleblowing without financially incentivizing it locally have set the stage for a rise in international whistleblowers.
  • Companies with robust compliance programs and processes will be the best prepared to address the rise in international whistleblowers.

1 31 U.S.C. § § 3729-3733.2 United States of America ex rel. Michael Epp v. Supreme Foodservice AG, No. 10-CV-1134 (E.D. Pa. 2014), .3 Public Interest Disclosure Act 1998, c. 23 (U.K.), .4 Protected Disclosures Act 2014, no. 14 (Ir.), .5 Council of Europe, La Protection Des Lanceurs D’alerte, 2014, .6 “Submit a report,” Office of the Whistleblower, accessed October 25, 2019, .7 Securities Act, R.S.A. 2000, cS-4 (Can.)8 Benjamin Shingler, “Quebec’s ombudsman slams Agriculture Ministry for firing pesticide whistleblower,” CBC News, June 13, 2019, .9 Xnet, Template for a Law on Full Protection of Whistleblowers, last updated May 9, 2015, .10 Anti-Corruption Helpdesk, Whistleblower Reward Programmes, Transparency International, May 26, 2017, .11 Anti-Corruption Helpdesk, Whistleblower Reward Programmes.12 Spectator Staff, “A new authority will protect Slovak whistleblowers,” SME, February 19, 2019, .13 Bribery Act 2010, c. 23 (U.K.).14 Dutch Criminal Code, amended 2012, .15 OECD, OECD Integrity Scan of Kazakhstan, June 15, 2017, .

Copyright 2020 CEP Magazine, a publication of the Society of Corporate Compliance and Ethics (SCCE).

Genetic Testing Gold Rush Gives Rise To Fraud Allegations

Tuesday, December 10th, 2019

On Sept. 27, the U.S. Department of Justice announced criminal charges against 35 individuals across various jurisdictions, allegedly involved in genetic testing fraud schemes that cost taxpayers over $2.1 billion.

The government asserted that the individuals had engaged in audacious schemes to target seniors and the disabled through the ordering of cancer genetic screening, or CGx, laboratory tests. CGx tests are performed to screen patients for genes that may show that a patient is predisposed to developing certain cancers.

The DOJ alleged that physicians were bribed to order these very expensive DNA tests. The government claimed that in many cases the physicians did not even treat the patients or only saw them via a cursory telemedicine consultation.

U.S. Attorney Bobby L. Christine of the Southern District of Georgia warned that “[w]hile these charges might be some of the first, they won’t be the last.” Christine’s warning may prove prescient.

Just last month, Reuters labeled genetic testing in the elderly as the “[n]ew frontier in health fraud.” Genetic testing fraud indeed appears to be very much on the rise and these recent indictments are not the DOJ’s first foray into the area. The federal government has launched over 300 investigations into alleged fraud in the genetic testing industry, many of which are almost certainly ongoing.

Just as several years ago the toxicology industry became inundated with fraudulent schemes, genetic testing, which is similarly lucrative and prone to abuse, is particularly fertile ground for fraudulent diagnostic testing schemes.

Genetic Testing: The Basics

Genetic tests are not limited to CGx cancer screenings. Genetic testing can be used in various other respects, both legitimate and illegitimate. For example, pharmacogenetic/pharmacogenomic, or PGx, tests are another major growth area in the genetic testing arena where concerns over fraudulent conduct have grown substantially in recent years.

PGx tests, when used legitimately, are aimed at identifying genetic variations suggesting that a patient may have an unusual reaction to a specific medication (e.g., a certain genetic variation may show that a patient may metabolize a medication at an unusually low or high rate). PGx tests may, therefore, be useful if a patient has shown an otherwise unexplained reaction to a certain medication.

Yet, the scientific evidence supporting PGx tests (and genetic testing generally) in the vast majority of cases remains quite slim. To date, Medicare has generally recognized that PGx and other genetic tests are medically necessary in only a very narrow set of cases. Medicare administrative contractors have issued numerous local coverage determinations making that clear.

Even where no local coverage determination is at issue, to be reimbursable, a test must still be medically necessary and thus the absence of an local coverage determination addressing a particular test does not mean that the test meets the medical necessity standard.

Further, the Medicare claims processing manual explains that screening tests (genetic or otherwise) are generally not covered by Medicare.[1] A practitioner who routinely performs genetic tests on patients, regardless of each patient’s clinical history and presentation, would almost certainly run afoul of Medicare’s requirements.

Despite the currently limited utility of genetic tests, Medicare has paid billions for these services. Between 2015 and 2018, Medicare payments for genetic tests more than doubled, to well over $1 billion in 2018. As the recent indictments show, the widespread use of these tests may have less to do with clinical utility and more to do with financial incentives.

Other genetic testing cases show that the DOJ’s recent crackdown is not a flash in the plan.

Given the sums of money at issue, the genetic testing industry has become a magnet for enterprising individuals. As has occurred in health care bonanzas of past, with the potential for great riches have come bad actors. Fraudulent schemes vary from the more nuanced to the facially egregious.

Regulators and whistleblowers have taken notice. In the indictments discussed above, the scheme fell on the latter end of the spectrum, involving payments to doctors to issue referrals for patients that, in some cases, they never even saw. More nuanced but not doubt troubling schemes have drawn the DOJ’s ire. Recent False Claims Act settlements are instructive.

Just weeks after the September indictments, the DOJ announced a False Claims Act settlement on Oct. 9, with pharmacogenetic lab UTC Laboratories Inc. and three of its principals. The lab agreed to pay $41.6 million with the three individuals responsible for another $1 million. The case resolved allegations, brought to light via numerous whistleblower complaints, that the lab paid kickbacks to doctors as well as marketers and relatedly billed for medically unnecessary tests.

The physician kickbacks were, as the government described them, thinly disguised as seemingly legitimate payments for physician work on a UTC-led clinical study. In fact, the government alleged, the payments were used to leverage referrals from the physicians. The clinical study work was purportedly no more than smoke and mirrors.

The UTC case, more so than that set out in the recent indictments, is likely more indicative of the sort of kickback schemes most common in the genetic testing industry, where the kickback is, at least to some degree, concealed as a seemingly legitimate form of remuneration.

In fact, the physician kickback in the UTC case is remarkably similar to that alleged by the DOJ in another multimillion dollar genetic testing fraud settlement involving Primex Clinical Laboratories LLC and its owner, where Primex purportedly concealed its kickbacks as payments to doctors for providing clinical data to the lab. Whenever there is a remuneration arrangement between a laboratory and a referral source (be it in cash or otherwise), the DOJ and relators are likely to take note.

The fact that the DOJ, in both the UTC and Primex civil cases, held individuals to account is notable. Despite robust revenue, oftentimes labs may be thinly capitalized and may move funds to individuals, trusts or shell companies to hide assets from regulators. Individual accountability helps to mitigate those concerns.

That is to say, if the DOJ, consistent with the Yates Memo, continues to hold individuals accountable, the government may be able to avoid what so often occurred during the (still ongoing) toxicology lab crackdown that started earlier this decade: Labs billed the government for billions, moved assets out of their corporate coffers, sought bankruptcy protection once regulators placed them in the crosshairs and avoided the full brunt of FCA liability.

In an earlier January FCA settlement, GenomeDx Biosciences Corp. agreed to pay $1.99 million to resolve allegations that it billed Medicare for medically unnecessary genetic tests. Unlike in Primex, there was no claim that the lab had paid kickbacks to obtain its referrals. While the DOJ has shown a preeminent focus on holding companies and individuals accountable for kickback schemes, GenomeDx serves as a warning to labs that are engaged in billing government payors for tests that are simply unnecessary, a substantial concern given the narrow set of circumstances where genetic testing has been deemed necessary by the Centers for Medicare and Medicaid Services and its contractors.

Ultimately, genetic testing schemes are likely to fall into a discrete number of fact patterns (which may overlap in the event multiple arrangements are at play).

Remuneration to Physicians

As the UTC and Primex cases show, remuneration to physicians for referrals may be disguised as superficially legitimate payments (e.g., consultation fees), services or other forms of remuneration. In some cases, a physician (or his or her practice) may have an equity (or other financial interest) in the genetic testing lab which may give rise to violations of the Anti-Kickback Statute and/or Stark Law.

Payments to Marketers

DOJ has made clear that paying commissions to independent contractors for referrals runs afoul of the Anti-Kickback Statute. In the UTC case, the lab allegedly paid independent marketers for referrals on a commission basis. The facts of UTC are not unusual. It is common practice in the genetic testing industry for labs to pay independent marketers for referrals. In such cases, both the marketers and the lab may be held liable.

Waiving Copays and Other Forms of Remunerations to Patients

Given that genetic testing services can cost upwards of $5,000 per test, patient copays tend to be substantial. In order to avoid scaring off patients via sticker shock, laboratories may waive or substantially reduce copays or similar patient payment obligations. If copay waivers (or other forms of financial assistance) are provided systemically or otherwise without legitimate consideration of a patient’s financial condition, then regulators may find that the arrangement violates the Anti-Kickback Statute.

Policies That Lead to Medically Unnecessary Tests

Practices, particularly those with a financial interest in a genetic testing lab, may institute policies that coerce their practitioners to order genetic tests when they are otherwise unnecessary. These policies may be issued under the guise of the standard of care, claiming that the practice is providing cutting-edge personalized or precision medicine services to its patients. Even in the rare case when a genetic test is necessary to identify a specific genetic variation, an entity may have a policy that pushes physicians to order additional, unnecessary tests to identify other genes.

Upcoding

In some cases, labs may be upcoding, which means billing payors for a more expensive test (or panel of tests) than that which was actually performed. In that genetic testing is relatively new, Medicare and other insurance auditors may find it difficult to adequately crack down on such practices as the auditors may not be fully familiar with the relevant coding standards.

Conclusion

If fraud hotbeds of the past are any indication (e.g., toxicology labs and compounding pharmacies), once the federal government and relators take notice of rapid growth and noncompliance in a specific corner of the health care industry, they are not likely to sit idly by as untoward amounts of government funds are siphoned off to bad actors. The recent indictments as well as the UTC, Primex and GenomeDx cases are likely just the tip of the genetic testing iceberg as whistleblowers and regulators continue to scrutinize this still growing industry.

[1] Medicare Claims Processing Manual, Ch. 16, § 120.1 (“Tests that are performed in the absence of signs, symptoms, complaints, personal history of disease, or injury are not covered except when there is a statutory provision that explicitly covers tests for screening as described.”).

Alexander M. Owens, Genetic Testing Gold Rush Gives Rise To Fraud Allegations, Law360 (November 12, 2019), https://www.law360.com/articles/1218668/genetic-testing-gold-rush-gives-rise-to-fraud-allegations

The Third Circuit Rules that the FCA’s “Alternate-Remedy Provision” Does Not Provide a Relator the Right to Intervene in a Criminal Proceeding for a Piece of the Criminal Restitution

Friday, November 15th, 2019

On October 28, 2019, the Third Circuit became the most recent circuit court to determine that the False Claims Act’s (“FCA”) other alternate-remedy provision, 31 U.S.C. § 3730(c)(5), does not give a relator the right to intervene in a criminal proceeding. United States v. Wegeler, 2019 WL 5538568, — F.3d — (3d Cir. Oct. 28, 2019). The Third Circuit, in an opinion written by Judge Joseph A. Greenaway, Jr., joined the Ninth and Eleventh Circuits in prohibiting a relator from intervening in a criminal proceeding.

The relator, Jean Charte, filed a qui tam lawsuit against defendants American Tutor, Inc., James Wegeler Jr., James Wegeler Sr., and Sean Wegeler, alleging that the defendants submitted false reimbursement claims to the United States Department of Education. Charte cooperated with the government as required under the FCA statute and provided the government with information that “directly led to an investigation that resulted in the criminal prosecution of Wegeler, Sr., for tax fraud and tax evasion.” Id. at *1. Wgeler Sr. ultimately entered into a plea agreement that required him to pay $1.5 million in restitution. Charte tried to intervene in the criminal proceeding, claiming that the criminal plea was an alternate-remedy under the FCA and that she was entitled to a relator share of the recovery but was denied.

Charte appealed based primarily on the theory that a criminal proceeding constitutes an alternate-remedy, entitling her to intervene in the criminal action and recover a share of the proceeds. The Third Circuit rejected her claim on the grounds that “[s]uch a holding would be tantamount to an interest in participating as a co-prosecutor in the criminal case of another.” Id. at *2.

The Relator’s Position

The relator asked the Court to adopt the position that a relator has the right to intervene to recover a share of the proceedings derived from a proceeding that the government pursues under the alternate-remedy provision. Id. at *5.  The relator did not seek to “intervene in the criminal proceeding proper.” Id. at *7.The relator merely wanted to intervene “to protect her interest and that of the United States in her share.” Id. The Third Circuit did not find this argument persuasive holding that the relator did not have standing to intervene in the criminal prosecution of another and that even if the relator did have standing, the sole remedy would be to commence or continue an FCA action.

The Courts Decision

In denying the relators appeal, the Third Circuit reviewed the plain text of the FCA statute as well as Article III of the Constitution. The FCA provides a relator the “right to continue as a party to the action.” 31 U.S.C. § 3730(c)(1). This encompasses “a suite of rights to participate in a proceeding pursuant to the alternate-remedy provision” and the “right to 15 percent but not more than 25 percent of the proceeds that result from such an action.” Wegeler, 2019 WL 5538568 at *5.

According to the Court, asserting the rights provided to a relator under § 3730(c)(1) would be squarely at odds with Article III of the Constitution and the “long held tradition of American prudence that ‘a private citizen lacks a judicially cognizable interest in the prosecution or non[-] prosecution of another.” Id. at *6 (quoting Linda R.S. v. Richard D., 410 U.S. 614 (1973).

The Court analyzed the relator’s contention that her vested interest in a share of the restitution confers standing to the relator on matters relating to FCA complaints. See Vermont Agency of Natural Resources v. U.S. ex rel. Stevens, 529 U.S. 765 (2000). The Court recognized that the relator has standing to prevent the violation of the relator’s award but found that “the district court in the FCA suit remains responsible for adjudicating the Relator’s share of the alternate proceeding.” Wegeler 2019 WL 5538568 at *7. Since the District Court was the appropriate place to adjudicate the relator’s share under the statute, relator did not have standing to intervene in a criminal matter.

The Third Circuit expressly did not opine on whether criminal restitution constitutes an alternate-remedy, or whether the relator would have been precluded from receiving proceeds from a claim ultimately resolved under the Internal Revenue Code.

Conclusion

While the Third Circuit did not rule on whether criminal restitution ultimately constitutes an alternate-remedy as defined by the FCA, Wegeler provides a reminder to relators that their rights in criminal matters are extremely limited. In light of the instruction in the “Yates Memo” that the government seeks to hold individuals who perpetrated the fraud responsible, often criminally, it is important for whistleblowers to be cognizant of the fact that they may not have a right to criminal restitution and that a proactive and diligent counsel can help ensure that the government recognizes their contributions.


First of Its Kind? Private Equity Firm Riordan, Lewis & Hayden Inc. and its Portfolio Company Patient Care America Settle False Claims Act Lawsuit

Monday, September 23rd, 2019

On September 18, 2019, the Department of Justice announced a $21.35 million settlement with compounding pharmacy Patient Care America, PCA executives Patrick Smith and Matthew Smith, and, most notably, the pharmacy’s private equity backer, Riordan, Lewis & Haden Inc.  The private equity firm and the pharmacy will fund substantially all of the settlement ($21.036 million).  The case has been closely watched for the Department of Justice’s targeting of a private equity firm.  The case appears to be the first time the federal government has intervened against a private equity firm in an FCA matter.  The government’s efforts have proven fruitful. 

The case stems from a whistleblower complaint filed in 2015 in the Middle District of Florida.  United States ex rel. Medrano, et al. v. Patient Care America, et al., 15-62617 (S.D. FL.)  In early 2018, the United States, joining in the action, filed a False Claims Act Complaint in Intervention against the defendants.  The government alleged that the pharmacy had paid kickbacks to independent marketers to procure prescriptions for compound pain medications, a violation of the Anti-Kickback Statute and False Claims Act.  The government sought to hold the private equity firm liable as well, alleging that the investment firm knew and approved of the illegal referral arrangement. 

While the settlement with a private equity defendant appears to be a first of its kind, it is unlikely to be the last.  See, e.g., Commonwealth ex rel. Martino-Fleming v. South Bay Mental Health Center, Inc., CV 15-13065-PBS, (D. Mass.) (state of Massachusetts intervened in FCA complaint against healthcare company and its private equity firm).  In recent years, private equity firms have been investing more and more heavily in the healthcare space, particularly in retail healthcare companies, which have perhaps the highest level of exposure to FCA liability.  As the allegations in Patient Care America show, private equity firms often take a very hands management role in their portfolio companies. That level of control brings with it the potential for extensive FCA liability.  FCA liability is not limited to the individual or entity that files a false claim.  In fact, the law is clear that individuals owning or managing companies engaged in fraud may be held liable under the FCA.   See, e.g., Martino-Fleming, CV 15-13065-PBS, 2018 WL 4539684, at *5 (D. Mass. Sept. 21, 2018) (refusing to dismiss claims against private equity firm that owned healthcare company allegedly involved in fraud); U.S. ex rel. Schagrin v. LDR Industries, LLC, 14-cv-09125, 2018 WL 6064699, at *6 (N.D. Ill. Nov. 20, 2018) (individuals that owned and managed company engaged in fraud could be held liable for failing to stop fraudulent conduct).  In announcing the settlement, United States Attorney Ariana Fajardo Orshan referred to the government’s “commitment to hold all responsible parties to account for the submission of claims to federal health care programs that are tainted by unlawful kickback arrangements.”  The comment echoes the DOJ’s Yates memo which reminded individuals that liability does not end at the corporate boundary.  Patient Care America may serve as a corollary to the Yates memo, putting private equity firms on notice that their liability may not be limited to just their financial exposure in the portfolio company.  A private equity firm may itself face direct liability.  The settlement in Patient Care America is likely to embolden relators and prosecutors in future cases where private equity firms have benefitted from their investment in, and management of, enterprises alleged to have engaged in fraud.