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Report
QUI TAM - QUI WHAT?
Perspectives From Experienced Government Counsel,
Relator’s Counsel & Defense Counsel
17th Annual FLABOTA Convention
Friday, July 18th, 2014
The Breakers
Palm Beach, Florida
SPEAKERS
• Government Counsel
– Jeffrey W. Dickstein, Esq.
• Assistant United States Attorney, United States Attorney’s Office for the Southern
District of Florida
• ([email protected])
• Relator’s Counsel
– Marc S. Raspanti, Esq.
• Partner, Pietragallo Gordon Alfano Bosick & Raspanti, LLP in Philadelphia, PA
• (www.Pietragallo.com / www.FalseClaimsAct.com /
www.FraudWhistleblowersBlog.com)
• Defense Counsel
– Meredith S. Auten, Esq.
• Partner, Morgan Lewis & Bockius, LLP in Philadelphia, PA
• (www.MorganLewis.com)
THE FALSE CLAIMS ACT OVERVIEW
1863 - 2014
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Enacted during the Civil War by Abraham Lincoln to combat
Defense Contractor fraud
– Also called the Qui Tam Statute, the Whistleblower Law or
the “Lincoln Law”
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Strengthened in 1986 during the Cold War
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Expansive reach – all goods/services provided with any federal
funds, now heavily focused on fraud in Healthcare programs
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Vibrant Future – Recently amended substantially by Congress
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Can affect any institution, entity or individuals doing business
directly or indirectly with the government
THE FALSE CLAIMS ACT
• False Claims Acts apply to all types of goods, services
and Government contracting, and have been particularly
effective in combating
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Healthcare (Medicare and Medicaid) Fraud
Pharmaceutical Fraud
Financial Industry Fraud
Defense Contracting Fraud
Energy (Oil and Gas) Contracting Fraud
Iraq Reconstruction Fraud
Environmental Fraud
Disaster Relief Fraud
Construction and Procurement Fraud
Research Fraud
STATE FALSE CLAIMS ACT
• 29 states currently have their own False Claims Act
• The Florida FCA was passed in 1994 and amended in 2007
– Morgan Lewis partner Bobby Brochin was a drafter
STATE FALSE CLAIMS ACT
29 States now have their own FCAs
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California
Colorado
Connecticut
Delaware
Florida
Georgia
Hawaii
Illinois
Indiana
Iowa
Louisiana
Maryland
Massachusetts
Michigan
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Minnesota
Montana
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
Oklahoma
Rhode Island
Tennessee
Texas
Virginia
Washington
Wisconsin
MUNICIPALITY FALSE CLAIMS ACT
The following municipalities have their own False Claims Acts:
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Chicago
New York City
District of Columbia
Philadelphia
Allegheny County, PA
FEDERAL FALSE CLAIMS ACT
• Qui tam cases produced $39 billion in settlements hundreds of millions to over $1 billion in some cases
• Examples of top civil recoveries:
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GlaxoSmithKline - $2 billion
Johnson & Johnson - $1.7 billion
Pfizer - $1 billion
Bank of America - $1 billion
Tenet Health - $900 million
Abbott - $800 million
Home America Mortgage - $320 million
FEDERAL FALSE CLAIMS ACT
• What it does NOT cover:
– FCA does NOT cover tax fraud
– New IRS Whistleblower Provision
• 26 U.S.C. § 7623
– New SEC Whistleblower Program
• 15 U.S.C. 78a et seq.
FEDERAL FALSE CLAIMS ACT
PROHIBITED CONDUCT
• FCA prohibits:
– Knowing submission or causing submission of false
or fraudulent claims for payment
– Knowing submission or causing submission of false
or fraudulently records in support of a false claim
– Conspiracy to submit a false claim
– Submission of false records to reduce money owed to
the United States
• 31 U.S.C. § 3729
FEDERAL FALSE CLAIMS ACT
PROHIBITED CONDUCT
• Not limited to classic fraud
• “Knowing” falsity broadly defined
– Actual knowledge
– Reckless disregard / deliberate ignorance of the truth
or falsity of the information – “ostrich with its head in
the sand”
• Regulatory / contractual violations can be recast as
knowing falsity
WHAT IS A CLAIM UNDER FCA?
• Any request or demand, whether under a contract or
otherwise, for money or property which is made to a
contractor, grantee, or other recipient if the U.S.
provides or reimburses any portion of the money or
property
• Examples of Claims Under the Act:
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Direct requests for payment
Indirect requests for payment
Obligations owed to the Government
Bids
Loan applications
Grant documents
Cost reports
FEDERAL FALSE CLAIMS ACT
• What Defendants can owe if held liable:
– Defendant liable for mandatory treble damages sustained
by the Government
– Defendant also liable for penalty of between $5,500 and
$11,000 per claim for each false claim to the Government
– Defendant liable for attorney’s fees and litigation costs
– Joint and several liability with no right of contribution or
indemnity
FEDERAL FALSE CLAIMS ACT
• Who can be a “relator?”
– A relator can be any “person,” including individuals,
entities, and companies
QUI TAM LITIGATION
• How will investigation generally proceed?
– Civil Investigative Demands
– Inspector General Subpoenas
– Search Warrants
– Grand Jury
– Interviews – voluntary
– Criminal HIPAA Subpoenas
HOT BUTTON SECTIONS OF LAW
• First to File Bar - 31 U.S.C. § 3730(b)(5)
• Public Disclosure Bar - 31 U.S.C. § 3730(e)(4)(A)
• Original Source - 31 U.S.C. § 3730(e)(4)(B)
• Fair, Adequate & Reasonable - 31 U.S.C. § 3730(c)(2)(B)
• Relator Share Award - 31 U.S.C. § 3730(d)(1)
• Attorney Fees Award - 31 U.S.C. § 3730(d)(1)
• Anti-Retaliation Provision - 31 U.S.C. § 3730(h)
FEDERAL FALSE CLAIMS ACT
• Attorney’s Fees and Costs
– If found liable, Defendant must pay the Relator’s
reasonable attorney’s fees and costs
– Attorney’s fees and costs are in addition to Relator’s
share of the recovery by the Government
FEDERAL FALSE CLAIMS ACT
• Whistleblower Protection – 3730(h)
– FCA protects any employee, contractor or agent
discriminated against because of lawful acts done in
furtherance of an FCA action
– Entitled to “all relief necessary to be made whole,”
including two times back pay, special damages,
attorney’s fees and costs
FEDERAL FCA ANTI-RETALIATION
PROVISION
31 U.S.C. 3730(h)(1)
Relief From Retaliatory Actions —
(1) In general — Any employee, contractor, or agent shall
be entitled to all relief necessary to make that employee,
contractor, or agent whole, if that employee, contractor, or
agent is discharged, demoted, suspended, threatened,
harassed, or in any other manner discriminated against in
the terms and conditions of employment because of lawful
acts done by the employee, contractor, agent or associated
others in furtherance of other efforts to stop 1 or more
violations of this subchapter
RELATOR’S PRIVATE
CAUSES OF ACTION
• Under Common Law
– Intentional torts
• Breach of Contract
• State Statutes
– New Jersey Conscientious Employee Protection Act
– Watch preemption issues
FEDERAL FALSE CLAIMS ACT
• Important Legal Issues
– 6-year statute of limitations, but can be extended to
10 years in certain cases
– Only the Relator who is the “First-to-File” eligible to
share in the recovery
QUI TAM LITIGATION
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Whistleblower – a.k.a. “Relator”
Files in the name of the Government
Complaint filed under seal
United States has 60 days to investigate and decide
whether to intervene or not – declination is 75% - 80% of
cases
– Decline and allow the private person to pursue the case on their
own
– File a notice of non-intervention at this time
• Relator shares in recovery (15% - 30%)
• Relator recoveries are currently higher in DOJ-intervened
cases
QUI TAM LITIGATION
• Relator and his information:
– Employee or ex-employee of defendant
– May have been involved in fraud to limited extent
– May be Government employee
– Cannot be a member of the Armed Services for
actions arising out of military service
– Second qui tam on same facts is barred
– Public disclosure bar unless “original source”
• Now government discretion to oppose dismissal
QUI TAM LITIGATION
• Intervention:
– Government may elect to intervene or decline
– In some or all of allegations
– Can file an amended complaint / common law causes
of action
– Seal is lifted
– If Government declines, it still remains real party in
interest
– Relators may pursue case on behalf of the
government unless government moves to dismiss
QUI TAM LITIGATION
• Relators’ shares:
– If Government intervenes, 15% - 25%
plus attorney fees and costs
– If Government declines, 25% - 30%
plus attorney fees and costs
– Awards reduced for relators who
planned and initiated fraud; no
recovery if criminally convicted of fraud
THE MODERN FEDERAL FCA
• Two separate Causes of Action
– Fraud Cause of Action – Whistleblower essentially
shares with the Government
– 31 U.S.C. § 3730(h) allegation – Relator’s Cause of
Action only
HEALTH CARE FRAUD
• Since the 1986 amendments to the federal FCA, the
federal Government has recovered over $30 Billion from
False Claims Act cases.
• More than 67% of qui tam cases in the last decade have
been health care fraud qui tam cases.
• Typical health care defendants: pharmaceutical
companies; medical device companies; hospitals; durable
medical equipment; physicians; medical suppliers
TYPICAL QUI TAM HEALTH CARE
FRAUD WHISTLEBLOWERS
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Pharma Sales Reps & Managers
Medical Device Sales Reps
Any Sales Reps
Medical Directors
Physicians
Hospital Executives
Quality Control Personnel
Pharmacists
Nurses
Accountants
Contractors
Compliance Officers
Counsel
TYPICAL HEALTH CARE
FRAUD ALLEGATIONS
• Drugs – (off label marketing; kickbacks; inflated pricing; PRM fraud)
• Upcoding
• Excessive or unnecessary medical / diagnostic tests being
performed on patients
• No health care services actually provided to the patient
• Kickback to illegally induce physician referrals
• All types of hospital based fraud
• Stark Violations
• Ghost patients billed
• Quality of health care services provided
• Overcharging Government health programs for DME, services
• Unlawful sales and promotion
• Research grant fraud
TYPICAL HEALTH CARE
FRAUD ALLEGATIONS
• Regulatory violations: any will do?
• Conflicts of interest, violations of industry codes of
ethics, state laws
• Various certifications of compliance
TYPICAL ALLEGATIONS AGAINST
MEDICAL DEVICE AND DRUG
MANUFACTURERS
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Cozy financial relationships between and among owners;
Aggressive “off-label” marketing practices;
Inappropriate marketing efforts;
Unapproved or adulterated devices and drugs;
Safety issues;
Industry sponsoring and paying for research;
Clinical trial issues;
FDA indications;
Direct consumer advertising issues;
Shortcuts in quality of care;
KICKBACKS…KICKBACKS…KICKBACKS
ENFORCEMENT LANDSCAPE
• Skewed industry focus on one industry sector: health
care
• Other industries ripe for focus: financial services,
technology, retail, defense contractors, energy,
educational institutions
– Financial Fraud Enforcement Task Force
– Procurement Fraud Task Force
• Well over 1,000 qui tams currently under seal – majority
are health care, but many financial institution defense
contractors as well
ENFORCEMENT LANDSCAPE
• Most civil and criminal cases have been and will continue to
be driven by qui tam plaintiffs and their counsel
• 3.8 billion recovered in 2013
• 752 qui tam filed in 2013- 2.9 million in recoveries
• 2.6 billion of 3.8 billion recovered from health care matters
• Much better coordination between Feds and many State AGs
• High Level of coordination between civil and criminal
prosecutors
• Over 160 federal qui tam actions spread across many judicial
districts against medical device and pharmaceutical
manufacturers
• $385 million to whistleblowers in 2013
ENFORCEMENT LANDSCAPE
• Judicial impatience with length of DOJ investigations
under seal in some jurisdictions – internal DOJ 9-month
rule
• Consortiums of relator counsel banding together
• Professional whistleblowers
• More sophisticated attorneys, more aggressive, more
willing to fight at all levels
• More cases going through discovery to the courthouse
steps
HEALTH CARE FRAUD
INVESTIGATIONS:
UNIQUE CHALLENGES
• Complex regulatory framework
• Complex payment and reimbursement system
• Medicare, 49 Medicaid programs, other health care
programs – SCHIP, TRICARE, FEHB, VHA, HIS
• Centers for Medicare and Medicaid Services, i.e.
CMS/OIG/FDA
• CMS policies and the FCA law don’t always interact
• Knowing where to find the answer is not always easy
HEALTH CARE FRAUD
INVESTIGATIONS:
UNIQUE ASPECTS
• Health care first or second largest expenditure of funds
in the country
• Relators / whistleblowers are everywhere from the lunch
room to the board room
• Nature of health care is “interaction” with all aspects of
society
• Lots of claims / millions of submissions / billions of
dollars
• Many disgruntled, downsized, displaced or demoted
employees
• Exclusion from the Medicare and Medicaid program is a
powerful deterrent
KEY STATUTES
• Federal False Claims Act – 31 USC 3729 et seq.
• False Claims Act Anti-Retaliation Provisions – 31 USC
3730(h)
• 29 State False Claims Acts
• Anti-Kickback Statutes – State and Federal
• The Stark Law, 42 USC §1395nn
• FERA (2009) and PPACA (2010) amendments
DEFENSE PERSPECTIVES
• Well-developed body of case law favorable to defense –
significant battlegrounds
– Scienter standard – negligent, innocent mistakes not
enough; ambiguous regulations not rise to level of knowing
violations
– Public disclosure and first-to-file bar – series of defensefavorable recent decisions to prevent parasitic suit
– Proper measure of damages – good recent decisions that
proper measure damages takes into account benefit
government received
– Penalties – can violate 8th Amendment; maybe not per
claims, but per act
– Enforceability of releases – more courts enforcing
– Rule 9(b) requirement to plead fraud with particularity
DEFENSE PERSPECTIVES
• Goal #1: manage company’s credibility in all
communications and strategic actions from first call to
government forward
• Define strategy early
• Determine what to fight about substantively on legal
issues: not on document production unless abuse
through CID process
• Goal is always DOJ declination as well as relator
dismissal
DEFENSE PERSPECTIVES
• Recent FCA amendments confirm proactive strategies
are necessary before intervention
• CIDS and information sharing with relators and states
may require defense interaction with the court
• Robust compliance programs remain the best defense
• Encourage employees, agents and contractors to use
internal channels to address concerns
• Investigate all of those calls
QUI TAM LITIGATION –
IT’S COMPLICATED!
• Intricacies of Federal Programs/Agencies
• Complexity of Liability and/or Damages Creates
Difficulties
• Relationships/Reputation with Government and Other
Relator’s Counsel
• Qui Tam Litigation: Relator + Government + Defendant =
Complicated³
COMPLEXITY CREATES
OPPORTUNITIES
• The process of a qui tam lawsuit:
– A potential whistleblower’s first consideration
– False Claims Act lawyer’s screening of the Relator’s
evidence
– Special aspects in drafting the FCA Complaint and
statutory disclosures
– Filing the case and presenting the matter to the
Government
– Company’s response to an investigation
– Government’s determination of whether to join the case
– Relator’s involvement during the seal period and beyond
– Settlement and/or litigation phase of the action
QUESTIONS

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