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SEC Releases Encouraging Report Regarding Its Whistleblower Program

The 2013 numbers are in for the Dodd-Frank whistleblower program and they are encouraging.  The SEC released its 2013 Annual Report on the program earlier this week which revealed that tips – and rewards – have increased since 2012.   The young whistleblower program is gaining steam and if it stays on course, it will no doubt be hugely successful in the coming years, perhaps even rivaling the success of the 150-year-old False Claim Act program.

The Report shows that tipsters are flooding in with reports of potentially fraudulent conduct.  Tips went up approximately 8% in 2013, increasing from 3,001 for 2012 to 3,238 for 2013.  That amounts to roughly 9 tips a day.  The tips poured in from all fifty states, with the bulk coming from California, New York, Texas, and Florida.  Tips also originated from the outer territories of Puerto Rico, Guam, and the US Virgin Islands.  And tips from abroad were up by 25% from 2012, coming in from 55 countries, with the most originating in the UK, Canada, China, Russia and India.  As in 2012, the three most common tips involved Corporate Disclosures and Financials (17.2%), Offering Fraud (17.1%), and Manipulation (16.2%).

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Lance Armstrong doping suit likely to proceed

A federal judge said on Monday he likely will allow a lawsuit to move forward accusing cyclist Lance Armstrong and his business partners of defrauding the U.S. Postal Service of endorsement money through Armstrong’s use of performance-enhancing drugs.

U.S. District Judge Robert Wilkins said at a court hearing in Washington that he planned to rule in writing within 30 days on requests by Armstrong and the other defendants to dismiss the suit.

“It might get dismissed as to some defendants. I can tell you I doubt it as to all,” Wilkins said. He was not specific about which defendants might still face claims.

Former Armstrong teammate Floyd Landis brought the suit in 2010 under a federal law that allows whistleblowers to report fraud committed against the government in exchange for a reward.

The U.S. Justice Department joined the suit in February, seeking to recover at least some of the $40 million that the Postal Service paid from 1998 to 2004 to have Armstrong and his teammates from Tailwind Sports wear its logo during cycling wins.

Read more  from Reuters here:


Johnson & Johnson to Pay More Than $2.2 Billion to Resolve Criminal and Civil Investigations

Global health care giant Johnson & Johnson (J&J) and its subsidiaries will pay more than $2.2 billion to resolve criminal and civil liability arising from allegations relating to the prescription drugs Risperdal, Invega and Natrecor, including promotion for uses not approved as safe and effective by the Food and Drug Administration (FDA) and payment of kickbacks to physicians and to the nation’s largest long-term care pharmacy provider.  The global resolution is one of the largest health care fraud settlements in U.S. history, including criminal fines and forfeiture totaling $485 million and civil settlements with the federal government and states totaling $1.72 billion.

“The conduct at issue in this case jeopardized the health and safety of patients and damaged the public trust,” said Attorney General Eric Holder.  “This multibillion-dollar resolution demonstrates the Justice Department’s firm commitment to preventing and combating all forms of health care fraud.  And it proves our determination to hold accountable any corporation that breaks the law and enriches its bottom line at the expense of the American people.”

The resolution includes criminal fines and forfeiture for violations of the law and civil settlements based on the False Claims Act arising out of multiple investigations of the company and its subsidiaries.

“When companies put profit over patients’ health and misuse taxpayer dollars, we demand accountability,” said Associate Attorney General Tony West.  “In addition to significant monetary sanctions, we will ensure that non-monetary measures are in place to facilitate change in corporate behavior and help ensure the playing field is level for all market participants.”

In addition to imposing substantial monetary sanctions, the resolution will subject J&J to stringent requirements under a Corporate Integrity Agreement (CIA) with the Department of Health and Human Services Office of Inspector General (HHS-OIG).  This agreement is designed to increase accountability and transparency and prevent future fraud and abuse.

“As patients and consumers, we have a right to rely upon the claims drug companies make about their products,” said Assistant Attorney General for the Justice Department’s Civil Division Stuart F. Delery.  “And, as taxpayers, we have a right to ensure that federal health care dollars are spent appropriately.  That is why this Administration has continued to pursue aggressively – with all of our available law enforcement tools — those companies that

Summary Judgment Motion Denied

On July 23, a federal district court in Ohio issued an opinion denying a relator’s summary judgment motion and providing further guidance on how courts may view “swapping” arrangements under the Anti-Kickback Statute. The relator alleged that Omnicare, a pharmacy provider, gave a nursing home improper discounts on drugs provided to Medicare Part A patients in exchange for referrals of Medicare Part D business, a so-called “swapping” arrangement that the purportedly violated the Anti-Kickback Statute. The relator moved for summary judgment on the basis of a contract with a nursing home in which Omnicare agreed to charge a nursing home a rate for certain drugs for Medicare Part A patients, but a higher rate (“usual and customary charge”) for the same drugs billed under Medicare Part D.

The court denied the relator’s motion for summary judgment on liability under the AKS for two reasons. The first issue was whether the prices that Omnicare  offered under Medicare Part A constituted “remuneration.”  The Court concluded that “fair market value” is the appropriate benchmark for determining remuneration.  Similarly, the court explained, Omnicare’s costs of providing services would be relevant “because no rational market participant would intentionally lose money on its Part A patients unless otherwise compensated.”  The court concluded that Omnicare had presented evidence sufficient to raise a genuine issue of fact on the issue of remuneration. On the second issue, the court also held that Omnicare had raised a genuine issue of fact as to whether Omnicare intended “below-market” pricing on Part A patients to induce the nursing home to refer Part D business or rather, as Omnicare contended, its pricing “was merely the product of sloppy accounting and management at Omnicare.”


ISTA Pharmaceuticals Inc. Pleads Guilty to Federal Felony Charges; Will Pay $33.5 Million to Resolve Criminal Liability and False Claims Act Allegations Involving Misbranded Drugs

Pharmaceutical company ISTA Pharmaceuticals, Inc. pled guilty earlier today to conspiracy to introduce a misbranded drug into interstate commerce and conspiracy to pay illegal remuneration in violation of the Federal Anti-Kickback Statute, the Justice Department announced today.  U.S. District Court Judge Richard J. Arcara accepted ISTA’s guilty pleas.  The guilty pleas are part of a global settlement with the United States in which ISTA agreed to pay $33.5 million to resolve criminal and civil liability arising from its marketing, distribution and sale of its drug Xibrom.

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District Court Allows Retained Overpayment False Claims Act Case To Go Forward

In United States ex rel. Keltner v. Lakeshore Medical Clinic, Ltd., a federal district judge denied the Defendant medical clinic’s Rule 9(b) motion to dismiss the False Claims Act complaint for failing to plead fraud with particularity.  The Relator in Keltner was a former billing department employee who alleged that the clinic discovered, through internal auditing, regular instances of Evaluation and Management (E/M)  upcoding, including the fact that two of its physicians had E/M upcoding error rates greater than 10%.  She further alleged that although the clinic corrected the specific claims identified during the audit, it failed to attempt to identify any other problematic claims and at one point stopped auditing completely.  The Relator’s theory was that this conduct created the plausible inference that the Defendant submitted false claims to the government for payment, which the Defendant had not timely refunded.  The court agreed and found that the Relator’s allegations supported the theory that the Defendant had acted with “reckless disregard for the truth” and had submitted false claims.  The court further held that the allegations supported a claim under the less-utilized “reverse” false claims act provisions of the False Claims Act, which allow a relator to sue if a defendant intentionally avoids an obligation to pay the government, such as an “unrefunded overpayment.”  Here, because the medical group had been put on notice of the billing errors but had failed to take corrective action regarding possible overpayments, the court found that the clinic “may have unlawfully avoided an obligation to pay money to the government.”

This case presents a good example of the potential interplay between the civil exposure created by “unrefunded overpayments” (pursuant to passage of FERA in 2009) and the False Claims Act.  The other key takeaway is that the “head in the sand” defense is not viable under the False Claims Act, and a provider’s failure to investigate audit findings and refund overpayments can support a “reverse” false claims suit.

Fourth Circuit Clarifies “Protected Activities” With Respect to a FCA Retaliation Claim

In Glynn v. Edo Corp., 710 F.3d 209 (4th Cir. 2013), the Fourth Circuit recently clarified what constitutes “protected activity” under the anti-retaliation provision of the False Claims Act, 31 U.S.C. § 3730 (h)(1).  As background, to prove a FCA retaliation claim, a whistleblower must show, inter alia, that he was engaged in “protected activity” by acting in furtherance of a whistleblower lawsuit.  Courts have historically grappled with the concept of what constitutes “protected activity,” and some courts have identified only a narrow class of conduct, while others have taken a more liberal point of view.  In Glynn, the Fourth Circuit adopted the former approach and held that the Plaintiff had failed to prove that he was retaliated against for engaging in “protected activity” because his evidence failed to “raise a distinct possibility of a viable FCA action” or prove that any false certification was “material.”  The court then affirmed summary judgment in the Defendant employer’s favor.

The relator in Glynn worked as an engineer for Impact Science & Technology (“IST”). IST designs and manufacturers Mobile Multi-Band Jammer systems (“MMBJs”), which are systems that are used to jam the frequencies used to detonate IEDs. Glynn alleged IST terminated him for reporting purportedly fraudulent conduct to the government, specifically that IST was “shipping systems that … were putting our troops in jeopardy” and that IST had failed to implement a quality assurance plan (“QAP”) as contractually required.

The Fourth Circuit rejected the whistleblower’s arguments that he was engaged in “protected activity” and explained that the insignificance of the defect identified by the whistleblower meant that the product still met the Government’s standards; that any false certifications of compliance were not material because the defect was so minor and because the failure to create a QAP was likely just an administrative failure; and that simply “perking” the Government’s ears by initiating an investigation was inadequate to constitute “protected activity.”

Eighth Circuit Rejects Justice Department Efforts to Avoid Paying Relators’ Share on Settlement “Unrelated” to Relators’ Qui Tam Claims

The Justice Department (“DOJ”) recently received a signifcant rebuke from the Eighth Circuit Court of Appeals.  After releasing  Hewlett-Packard Company from further FCA liability in return for a $55 million settlement, the Eighth Circuit Court of Appeals held that DOJ would have to pay a large portion of that settlement to the Relators, which far exceded the limited “share” payment DOJ wanted to make.  The court squarely rejected the government’s myriad arguments on the issue — including that Relators were not entitled to any recovery on certain qui tam allegations because they lacked the particularity required by Rule 9(b).  This ultimately means that DOJ has to pay the Relators $8.8 million, as opposed to the $1.9 million it wanted to pay.

South Carolina Ambulance Company To Pay $800,000 to Resolve False Claims Act Allegations

Williston Rescue Squad Inc. has agreed to pay the United States $800,000 to resolve allegations that it violated the False Claims Act by making false claims for payment to Medicare for ambulance transports, the Justice Department announced today.   Williston, based in Williston, S.C., provides ambulance transport services in the southwestern part of South Carolina.

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$125 million paid to IRS whistleblowers in 2012

The Internal Revenue Service announced Wednesday that it paid out $125 million to whistleblowers in the 2012 fiscal year, an apparent record, up from just $8 million last year.  The boom was driven largely by one man: Bradley Birkenfeld, a former banker at UBS who provided information on the firm’s vast business of helping wealthy Americans hide their assets abroad and received a record $104 million reward for his efforts.

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