At Barrett Johnston Martin & Garrison, LLC, we represent whistleblowers. Lead by Jerry Martin, former United States Attorney for the Middle District of Tennessee, our Whistleblower and Qui Tam practice helps whistleblowers expose fraud against the government while protecting their rights. As part of our practice, we make a point to stay informed on important cases, changes in the law, and any other developments that may impact whistleblowers.
And in 2016, there was a lot for us to follow.
It was a year of multi-million dollar settlements, two major Supreme Court decisions, and a host of new trends and developments to watch going forward. In this post, we break down and summarize the biggest developments of the past year—the important cases, the biggest settlements, and the trending issues that we can expect to see more and more of in the years ahead.
In the world of whistleblowing, there was no more important decision in 2016 than the Supreme Court’s Escobar decision. In that case, the Supreme Court tackled the question of what exactly makes a claim “false” for purposes of the federal False Claims Act. The defendant in that case had billed Medicaid for counseling services performed by self-described psychologists and psychiatrists who were not actually licensed in the state. The defendant argued that it never violated the False Claims Act, because it never actually represented to the government that the psychologists and psychiatrists were properly licensed. However, the Supreme Court rejected this narrow view of what makes a claim “false” and instead held that the critical question is whether the government would still have paid the claims had it known about the false statements or omissions underlying those claims. As with any significant Supreme Court decision, the reverberations of Escobar will be felt for years to come, as lawyers and lower courts attempt to apply its important holding in other cases.
In its second False Claims Act decision of 2016, the Supreme Court clarified an important procedural requirement in whistleblower lawsuits. Under the False Claims Act, private whistleblowers must file their lawsuits under seal — which means that neither the defendant nor the general public knows that the case has been filed. However, prior to Rigsby, there was mixed authority about what a court is supposed to do if a whistleblower breaches that seal — either deliberately or by accident. Rigsby clarified that courts should look at all the facts and circumstances and decide what to do on a case by case basis – with a particular eye towards whether the interests of the United States have been harmed by the breach of the seal.
Like Escobar, the Rigsby decision was widely hailed as pro-whistleblower, indicating that the Supreme Court appreciates the important role whistleblowers play in protected federal programs from fraud and abuse.
The AseraCare case is notable for being one of only a handful of False Claims Act cases that was taken to trial by the United States. As a result, the trial court had to address a lot of novel issues about how to actually prove a false claims act case to a jury. One particularly notable and controversial decision by the court during this litigation was to split the trial in two. During the first phase, the United States was required to prove that the claims submitted by AseraCare – which related to hospice services for individuals AseraCare claimed were terminally ill – were objectively false. In the second phase of trial, the United States would have to prove that AseraCare knew or should have known that the claims were false. Ultimately, the trial never made it to the second phase, as the court held that the United States failed to present sufficient evidence of the falsity of the underlying claims. That decision is currently on appeal, and a ruling is expected sometime this year.
2016 was also a year of big False Claims Act whistleblower settlements. Below are the three biggest. These three whistleblower cases collectively resulted in recoveries to the federal and state governments of nearly $2 billion.
In April of 2016, the Justice Department reached a $784.6 million settlement with the drug companies Wyeth and Pfizer, Inc. (Pfizer having purchased Wyeth in 2009), to resolve allegations that Wyeth deliberately underreported the prices it charged for proton pump inhibitor drugs as part of a scheme to overcharge the United States for those same drugs and avoid paying required rebates. Of this $784.6 million, more than $98 million was set aside as payment for the whistleblowers who first filed these claims.
For more on this settlement, see https://www.justice.gov/opa/pr/wyeth-and-pfizer-agree-pay-7846-million-resolve-lawsuit-alleging-wyeth-underpaid-drug-rebates.
In March, medical equipment manufacturer Olympus Corp. of the Americas agreed to pay $623.2 million to resolve allegations that it had paid kickbacks to doctors and hospitals to induce them to use Olympus products rather than products made by its competitors. The settlement resolved both civil claims and criminal charges, and $310.8 million of the settlement was designated as payment to resolve the civil case, which had been initiated by a whistleblower. According to the Department of Justice, this was the largest total amount ever paid in U.S. history for violations involving the federal Anti-Kickback Statute by a medical device company. Out of the civil portion of the settlement, the whistleblower received more than $50 million.
For more on this settlement, see https://www.justice.gov/opa/pr/medical-equipment-company-will-pay-646-million-making-illegal-payments-doctors-and-hospitals.
In October, Tenet Healthcare and several of its subsidiaries reached a $513 million deal to resolve state and federal False Claims Act allegations, as well as related criminal charges, based on an alleged kickback scheme where Tenet and its subsidiaries paid doctors and clinics in exchange for referring pregnant Medicaid recipients to Tenet hospitals. The whistleblower’s share of that $513 million was $84.43 million. Notably, in early 2017, the United States also criminally indicted former Tenet executive John Holland for conduct related to that alleged kickback scheme. That criminal prosecution remains pending, and there is has been no determination yet as to Mr. Holland’s guilt or innocence.
For more on the settlement agreement, see https://www.justice.gov/opa/pr/hospital-chain-will-pay-over-513-million-defrauding-united-states-and-making-illegal-payments.
For more on the subsequent criminal indictment, see https://www.justice.gov/opa/pr/former-executive-tenet-healthcare-corporation-charged-alleged-role-400-million-scheme-defraud.
Although they did not make it into the top three settlements for the year, there were also two major settlements within the skilled nursing industry in 2016 that suggest that this industry is becoming a major focus of the government’s fraud enforcement efforts.
Life Care Centers of America and Kindred Healthcare, Inc., together with their respective subsidiaries, each paid more than $100 million to resolve allegations that the companies provided nursing home patients with medically unnecessary therapy in order to bill more to the United States. The Life Care case settled for $145 million and the Kindred case settled for $125 million.
For more on the Life Care settlement, see https://www.justice.gov/opa/pr/life-care-centers-america-inc-agrees-pay-145-million-resolve-false-claims-act-allegations.
For more on the Kindred settlement, see https://www.justice.gov/opa/pr/nation-s-largest-nursing-home-therapy-provider-kindredrehabcare-pay-125-million-resolve-false.
At the same time, the Office of the Inspector General for the Department of Health and Human Services has announced that it will be coming out with at least three studies this coming year scrutinizing current practices in the skilled nursing industry: “Skilled Nursing Facilities – Unreported Incidents of Potential Abuse and Neglect,” “Skilled Nursing Facility Reimbursement,” and “Skilled Nursing Facility Adverse Event Screening Tool.”
In light these major settlements and the upcoming OIG reports, there is good reason to believe that skilled nursing facilities are going to be a major focus of federal enforcement in the months and years ahead.
As more whistleblower cases continue to be litigated, rather than just being settled or dismissed at the conclusion of the government’s initial investigation, there are going to be more and more fights about what evidence the whistleblowers and the government must provide to actually prove the fraud they are alleging. A particularly hot topic in this area right now is the question of statistical sampling. For example, if a whistleblower alleges that a hospital has submitted 10,000 false claims for payment, how many of those claims does the whistleblower have to present evidence for: 100? 1,000? All 10,000? If every single claim must be individually identified, then the burden on the government to prove its case will be incredibly high. Courts addressing the issue have come out different ways, depending on the particular circumstances. In light of this uncertainty, we expect to see a lot more of these types of fights in 2017, with appellate courts ultimately weighing in.
Historically, the unspoken rule in whistleblower cases was that if the government declined to intervene and take over the litigation, then the case was pretty much over. Although a whistleblower had the legal right to keep going with the case after declination by the government, the odds of prevailing were small, and few whistleblowers were willing to proceed without active government support.
That trend is officially over. In 2016 alone, there were 702 federal qui tam cases filed (see https://www.justice.gov/opa/pr/justice-department-recovers-over-47-billion-false-claims-act-cases-fiscal-year-2016). As the number of whistleblower cases keeps rising, the government has declined more and more cases simply due to its limited resources. As a result, good cases are declined for reasons having nothing to do with their merits. Skilled whistleblower lawyers can spot these cases and know how to keep litigating without the assistance of the government. Anyone thinking of blowing the whistle on government fraud should do their homework and pick an attorney who is experienced in litigating whistleblower cases and is prepared to take the case to trial.
We noted earlier in this entry that skilled nursing facilities are likely to be a major target of government enforcement in the year ahead. But it will certainly not be the only one. Based on OIG reports and publically available settlement records, it appears that there is increasing scrutiny on the entire world of post-acute care, i.e. the care patients receive after being discharged from the hospital. Some patients need intense physical therapy in a specialized rehab hospital after discharge from a hospital. Others may need care in a nursing home. And even those patients who do go home will often need new prescription drugs, new medical devices (wheelchairs, hospital beds, etc . . .), and/or home nursing care. Unfortunately, there are many opportunities for fraud during this transition, either because of unlawful kickbacks or gaps in oversight. The government appears to be aware of this fact and has suggested that this period of transition from acute to post-acute care is going to be a major enforcement focus. CMS must carefully balance its desire to reduce costs by discharging Medicare patients out of expensive inpatient hospital settings with the recognition that post-acute settings are fertile ground for fraud.
The vast majority of payments to whistleblowers by the federal government are made under the federal False Claims Act. However, the IRS, SEC, and CFTC all have their own programs for awarding whistleblowers, and in recent years we have seen more awards to whistleblowers under these statutes. The SEC whistleblower program, for example, has awarded approximately $135 million to 36 different whistleblowers since the commission made its first award in 2012. While these numbers still pale in comparison to whistleblower awards under the False Claims Act – $519 million in 2016 alone – there are likely to be more and bigger awards under these alternative statutes going forward as those whistleblower programs continue to develop and more and more potential whistleblowers learn about them.
One question that has been on the minds of lawyers who represent whistleblowers a lot lately is how the new administration may change the rules for whistleblowing and the protections that exist under the law.
It is far too early to know the answer to these questions, but there are reasons to be (cautiously) optimistic:
Investigating and litigating cases under the federal False Claims Act is primarily the responsibility of the U.S. Justice Department. Senator Jeff Sessions, who appears likely to be confirmed as the next Attorney General, has gone on record as saying that he will make it a high priority to “root out and prosecute fraud in federal programs” and that “no powerful special interest will cower this department.” For more on Senator Sessions’ remarks during his confirmation hearings, see our coverage here.
President Trump has himself stated multiple times — both before and after the election — that drug prices under Medicare and Medicaid are too high and that his administration will be aggressive in challenging drug companies that charge too much.
President Trump’s Supreme Court nominee, Judge Neil Gorsuch, authored a generally pro-whistleblower decision as a judge on the Tenth Circuit Court of Appeals. In U.S. ex rel. Boothe v. Sun Healthcare Group, Inc., 496 F.3d 1169 (10th Cir. 2007), the Tenth Circuit was asked to decide whether a whistleblower who was not the first to file on all of her fraud claims had a legal right to litigate any of her claims. The lower court held that the whistleblower had no such right. However, on appeal, Judge Gorsuch (writing for a unanimous court) reversed that decision. Judge Gorsuch explained that in determining whether a whistleblower is the first to file — which is a requirement under the False Claims Act — the court must look at each allegation of fraud that the whistleblower has made. In the Boothe case, the court held that the whistleblower was clearly not first to file on three of her ten allegations. However, because the lower court had dismissed the whole case without separately analyzing the other seven claims, the dismissal was improper. Or, as Judge Gorsuch himself put it, “three bad apples does not necessarily warrant discarding the barrel.”
As we look back at 2016 and look forward in 2017, one thing becomes abundantly clear: whistleblowing remains an integral component of the federal government’s mandate to protect taxpayer funded programs from fraud, waste, and abuse. With billions of dollars at stake, whistleblowers will continue to bring claims against companies who will vigorously defend against them. Although change is inevitable, there are no signs of any seismic shifts in the law or the government’s enforcement of it in the near future.
To learn more about our Whistleblower and Qui Tam practice group, click here. We are always available to answer your questions on a confidential basis.
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