Apollo Group Settles Qui Tam Case Relating To Fraudulent Activity By The University Of Phoenix

On December 14, 2009, Apollo Group, Inc., the parent company of the University Of Phoenix, announced that it had reached a settlement agreement with the U.S. Department of Justice and two private whistleblowers resolving allegations that the University of Phoenix violated the false claims act by compensating its recruiters solely on the basis of the number of students they enroll, a policy that abridges U.S. Department of Education regulations.  The Apollo Group agreed to pay the Government $67.5 million and $11 million in attorneys fees to the whistleblowers to settle the lawsuit.

New Jersey Hospital Agrees To Pay $ 3 Million To Settle Medicare Fraud Lawsuit

On November 18, 2009, the U.S. Department of Justice announced that it had reached an agreement with New Jersey based Trinitas Regional Medical Center to resolve allegations in a qui tam lawsuit that the hospital submitted false Medicare claims in violation of the False Claims Act.  Besides its regular reimbursement system, Medicare also offers supplemental “outlier payments” to health-care providers in cases where the cost of care is abnormally high. The payments are intended to incentivize providers to treat patients where the cost of care will be unusually expensive. The lawsuit alleged that Trinitas inflated its charges to obtain outlier payments for cases in which the actual cost of care was not unusually high and outlier payments should not have been available. In exchange for bringing the alleged fraud to the government’s attention, the whistleblower will receive approximately $679,000 with interest out of the total settlement.

SEC Whistleblower Program Moves Forward In Congress

The House Financial Services Committee recently voted 41 to 28 in favor of a bill known as the Investor Protection Act of 2009, being sponsored by Rep. Paul E. Kanjorski (D-Pa).  Kanjorski is Chairman of the House Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises.  The bill is H.R. 3817.   One part of the bill would create a whistleblower program at the Securities and Exchange Commission (SEC), similar in some respect to the IRS whistleblower program.  Under the bill, if a whistleblower provided information to the SEC that resulted in penalties of greater than $1 million, then the SEC could award the whistleblower up to 30% of the amount of the penalty.  

The bill has some good and some bad.  One of the good aspects of the bill is that it would explicitly permit anonymous whistleblowers to qualify for the reward.  In order to qualify for the award, an anonymous whistleblower would need to submit the information through an attorney, so that the SEC has a point of contact with the whistleblower.  This provision is very beneficial to whistleblowers who are trying to preserve their anonymity because of fears of losing their jobs, being blacklisted, or being harassed. 

A potentially bad aspect of the bill is that it makes whistleblower rewards discretionary with the SEC, and not subject to any judicial review.  By leaving the awards so open-ended, the bills runs the risk that the amount of the awards will be too small or too arbitrary, thereby undermining the incentive for whistleblowers to come forward with valuable information.

In any event, any sort of formal whistleblower reward program at the SEC is a huge step in the right direction for an agency that has a history of not taking whistleblowers seriously enough, as the Bernie Madoff story made clear.   We’ll keep track of this bill as it continues to work through Congress, and will post if there are any new developments.

Pharmaceutical Manufacturer and Nation’s Largest Nursing Home Pharmacy Agree To Pay $112 Million To Settle Qui Tam Lawsuit

On November 3, 2009, the U.S. Department of Justice issued a press release announcing that it had reached a settlement agreement in which Omnicare, Inc. agreed to pay $98 million and IVAX Pharmaceuticals, Inc. agreed to pay $14 million to settle a lawsuit brought by several whistleblowers on behalf of the Government alleging that Omnicare carried out illegal kickback schemes with IVAX and others in violation of the False Claims Act.  The lawsuit alleged that Omnicare facilitated four different types of illegal kickback schemes:  1)  that Omnicare solicited and received kickbacks from Johnson & Johnson in exchange for recommending that doctors prescribe Risperdal, a Johnson & Johnson antipsychotic drug, to nursing home patients; 2) that Omnicare paid kickbacks to nursing homes by providing them with consultant pharmacist services at below cost and fair market value rates; 3) that Omnicare solicited and IVAX paid $8 million in kickbacks to Omnicare in exchange for Omnicare agreeing to purchase $50 million in drugs from IVAX; and 4) that Omnicare conspired with others to arrange a $50 million payment to nursing home chains in exchange for the right to continue providing nursing home services.  The payments to the whistleblowers who disclosed this misconduct to the Government have not been finalized yet, but under the False Claims Act whistleblowers may receive a payment of between 15 – 25% of the total settlement proceeds.

Hospital Group In McCallan Texas Agrees To Pay $27.5 Million To Settle Qui Tam Action Alleging Unlawful Kickback Payments To Doctors

On October 30, 2009, the U.S. Department of Justice announced that it entered into a settlement agreement with McAllen Hospitals L.P. d/b/a South Texas Health System, a subsidiary of Universal Health Services, Inc., in which McAllen Hospitals agreed to pay $27.5 million to resolve a qui tam lawsuit alleging that the company paid unlawful kickbacks to numerous doctors in order to induce them to refer patients to the company’s hospitals, in violation of the rules governing Medicare and Medicaid.  The payments were allegedly disguised via sham contracts, including medical directorships and lease agreements.  The lawsuit was brought on behalf of the Government by whistleblower Bruce Moilan, a former employee of McAllen Hospitals.  Mr. Moilan’s share of the settlement was $5.5 million, equivalent to 20% of the total settlement proceeds.

Four Pharmaceutical Companies Agree To Pay $124 Million To Settle Medicaid Rebate Fraud Claims

On October 19, 2009, the U.S. Department of Justice announced that Mylan Pharmaceuticals, UDL Laboratories, AstraZeneca Pharmaceuticals, and Ortho McNeil Pharmaceutical agreed to pay a combined $124 million to settle a civil lawsuit under the False Claims Act alleging that the companies engaged in fraud in connection with Medicaid rebates.  According to the lawsuit, the defendants sold “innovator drugs” manufactured by other companies and classified those drugs as “non-innovator drugs” for Medicaid rebate purposes.  Under the Medicaid Prescription Drug Rebate Program, rebates required to be paid to Medicaid by drug companies for innovator drugs are higher than rebates for non-innovator drugs.  The fraud was brought to the attention of the Government through a qui tam action filed by Ven-A-Care, a corporation located in Key West, Florida.  The whistleblower received a total of $10,787,392 as its share of the Government’s recovery.  For more information, you can read the press release from the Department of Justice.

AT&T Missouri Pays $1.4 Million To Settle False Claims Act Lawsuit Related To The FCC’s E-Rate Program

On October 13, 2009, the U.S. Department of Justice (DOJ) announced that AT&T Missouri has agreed to pay $1.4 million to settle a civil lawsuit alleging that the company violated the False Claims Act by submitting false information and engaging in anticompetitive practices in connection with the Federal Communication Commission’s E-Rate Program.  The E-Rate program provides funds for schools and libraries to assist them in connecting to and using the Internet and is resourced through fees collected from telephone users.  The non-competitive practices alleged by the DOJ included that AT&T Missouri colluded with Kansas City, Missouri school district officials to obtain and extend contracts under the E-Rate program and that the company provided meals and other inducements to these officials.  AT&T Missouri’s alleged misconduct came to light through a False Claims Act lawsuit filed in Missouri federal court by American Fiber Systems Inc., which submitted an unsuccessful bid to the school district for E-Rate contracts that were ultimately awarded to AT&T Missouri.  American Fiber acted as a qui tam relator, and received $195,000 as its share for blowing the whistle on this fraud.  For more information, see the DOJ press release regarding the settlement.

Court Issues Decision On Illegal Kickbacks By DME Suppliers To Nursing Homes

The U.S. District Court for the District of Mississippi recently denied a motion to dismiss a complaint by the Government alleging that certain Durable Medical Equipment (DME) providers engaged in a scheme to provide unlawful kickbacks to nursing homes in exchange for referrals.  DME suppliers receive funds from the Government’s Medicare Part B program in exchange for providing equipment and services to patients.  In order to receive these funds, the suppliers must submit an application to the National Supplier Clearinghouse to receive a supplier number which is then used to submit claims for reimbursement through Medicare Part B.  In U.S. ex rel. Jamison v. McKesson Corp., et al., Case No. 2:08CV214-SA-DAS (N.D. Miss.), the Government alleged that a DME supplier set up a sham DME company that was owned by a nursing home chain, rather than the DME supplier, in order to obtain a supplier number from the Clearinghouse.  Medicare Part B claims for DME services were then submitted through the supplier number of this sham DME company and, as result, the nursing home was allowed to keep a substantial percentage of the profits resulting from the services provided by the DME supplier.  The Government alleged that in exchange for setting up this sham company to allow nursing home to share in the profits from DME services, the nursing home was induced to refer patients to the DME supplier, in violation of the False Claims Act and Anti-Kickback Statute.  In addition, the Government alleged that in connection with setting up sham DME companies, the DME supplier also offered substantial discounts to the nursing homes as another means of enticing the nursing homes to refer patients to the supplier.  This case was original brought by a quit tam relator, alleging a whistleblower claim under the False Claims Act.

Tax Whistleblower Statistics Reveal A Slow Moving Process

In a report issued recently, the Treasury Inspector General for Tax Administration discusses the IRS’s efforts to implement the whistleblower provisions of the Tax Relief and Health Care Act of 2006, which created Section 7623(b) of the Internal Revenue Code.  That section provides that the IRS will pay between 15% and 30% of the amount it collects to a whistleblower if the collection is the result of information provided by the whistleblower.  Section 7623(b) generally applies only to cases where the unpaid taxes and penalties exceed $2 million.  And to claim the 15-30% rewared, the tax whistleblower must follow certain procedures and (this being the IRS) must complete and submit the correct IRS forms.

The report contains some interesting statistics about what has been happening with tax whistleblower claims since Section 7623(b) became law in 2006.  The statistics in the report are as of March 30, 2009. 

First off, the report indicates that the IRS has paid no awards  to whistleblowers under Section 7623(b).  This is not really all that surprising, given how slowly tax proceedings move. 

The report indicates that 1,973 whistleblower claims have been filed under Section 7623(b).  Of those, 297 have been rejected, while 160 have been “reclassified” because they involved amount below the $2 million threshhold.  Of the remaining 1,516 claims, 685 have been referred to the Criminal Investigation Division (CID) for analysis because the information provided by the whistleblowers indicated intentional fraud.  Under IRS procedures, the CID must analyze and investigate these claims for potential criminal liability before the IRS seeks to actually collect the money.  So, for the whistleblowers waiting for their rewards, the referral to CID probably means an even longer period of delay.

That leaves 831 tax whistleblower claims that are somewhere else in the IRS system.  Of those, only 69 have actually reached the stage of an IRS examination (what the rest of us call an audit).  These 69 claims — a mere 3.5% of the claims that have been filed — represent the leading edge of this process.  They are the claims that are farthest along, and most likely to result in the payment of a reward to the whistleblowers.

Unfortunately, the overall message of this report is that the tax whistleblower process — at least as currently implemented by the Whistleblower Office — is extremely slow.  Hopefully, the Whistleblower Office will make the long waits worthwhile by paying substantial rewards to the whistleblowers once the claims result in collections by the IRS.

Biovail Pleads Guilty To Illegal Kickback Scheme That Resulted In False Claims

Biovail, a major player in the pharmaceutical industry, pled guilty last week to charges of paying illegal kickbacks to medical professionals who recommended or prescribed Biovail’s hypertension drug, Cardizem L.A.   Biovail has been sentenced to pay a $22.2 million criminal fine, and has also agreed to pay $2.4 million to resolve allegations that its conduct caused the submission of false claims for payment of federal funds. 

According to federal prosecutors,  Biovail paid thousands of medical professionals up to $1,000 to enroll between 11 and 15 patients in a special plan that required the professionals to write Cardizem prescriptions.  These included prescriptions that were paid by the Medicaid program.

Federal law prohibits the payment of kickbacks, bribes, or rebates for the purposes of inducing a person to order or recommend the purchase of any item paid for by a federal health care program, including a Medicaid program.  Similarly, the federal False Claims Act prohibits the facilitation of false or fraudulent claims for payment to the government. In 2003 alone, the Medicaid program paid out more than $3 million in reimbursements for Cardizem-brand prescriptions nationwide.  

Cardizem L.A. was introduced in March 2003 as the world’s first 24-hour time-release hypertension medication.  Apparently, Biovail shareholder value was tightly linked to Cardizem L.A.’s success.  In an email prior to the medication’s launch, a Biovail vice president urged pharmaceutical sales representatives to “deliver growth” because his personal “net worth would shrink dramatically” if the new Cardizem brand failed.

Biovail has been developing, manufacturing and distributing pharmaceutical products since the 1990s, and boasts a portfolio of well-known brands such as Ativan, Well-Butrin, Ultram, and Zovirax.   In Canada, Biovail’s drugs are marketed and sold directly to primary care physicians.  According to Biovail’s website, the company “intends to develop or acquire a specialty sales force” to promote certain products “directly to specialists in the U.S.”  Hopefully, this sales force will use legitimate marketing techniques that do not result in violations of the False Claims Act.