M37: Dealing with the False Claims Act at Research Institutions
• Monday, October 20, 2014 - 2:00 pm to 3:15pm
Presented byJ. Michael Slocum, EsquireSLOCUM & BODDIE, P.C.5400 Shawnee Road, Suite 300Alexandria, Virginia 22312Telephone: (703) 451-9001Facsimile: (703) [email protected]
Objectives
• 1. Understand the broad scope of the False Claims Act and the core elements of a false claim
• 2. Identify situations and issues that have been asserted to implicate the False Claims Act and could be used as allegations in a False Claims Act case
Overview
• The Federal (and many state) False Claims Acts allow individuals (whistleblowers) to report fraud against the government. The Federal and most state Acts provide legal rights to those who “blow the whistle” on fraud and reward whistleblowers a portion of the money that these governments recover from corrupt government contractors.
• In general, the Federal False Claims Act (FCA) covers fraud involving any federally funded contract, grant or program, except for underpaid taxes
False Claims Act: An Overview
●The Act was originally enacted in 1863 as a result of outrage over faulty war supplies to the Union Army during the Civil War.
● In 1943 the Act was amended to reduce the relator’s (whistleblower’s) share of the recovered proceeds.
● In the 1980s, emphasis on fraud by defense contractors led to public outrage.
● In the 1990’s the focus of the Act shifted to health care fraud.
● In February 2006, the Deficit Reduction Act of 2005 (PL 109-117mandated that all health care organizations receiving more than $5 million in federal funding provide staff education on the False Claims Act.
What is a “FALSE CLAIM?”
• A false claim is a type of fraud.– Fraud under the Federal False Claims Act means that a
company, contractor, city or county has knowingly presented a false claim for payment to the United States.
– Use of money (or other things of value) for something other than that for which it was provided.
– The fraud can occur wherever federal monies are used. (For State laws, the use of state money will trigger liability).
Does this really apply to us?
• False Claims by Schools and Universities• Grant applications containing false or inaccurate statements such
as misstatements concerning prior research.• “Cleaning,” manipulating and misinterpreting data on research
reports and interim reports.• Improper accounting for indirect research costs.• Improper inclusion or charging of non-allowable expenses to
federal grants or loans such as for “phantom” employees who do not actually work on that grant or for hours that were not actually worked.
• Scholarship applications containing false or inaccurate statements, such as failure to confirm U.S. citizenship for Pell Grant applicants.
• Double billing.
The Feds wouldn’t do this to a University, would they?
• Emory University To Pay $1.5 Million To Settle False Claims Act Investigation
– FOR IMMEDIATE RELEASE August 28, 2013
• University Overbilled Medicare and Medicaid for Patients Enrolled in Clinical Trial Research at Emory’s Winship Cancer Institute
• ATLANTA - The United States Attorney’s Office for the Northern District of Georgia and Attorney General Sam Olens announced today they have reached a settlement with Emory University, which agreed to pay $1.5 million to settle claims that it violated the False Claims Act by billing Medicare and Medicaid for clinical trial services that were not permitted by the Medicare and Medicaid rules.
• Providers generally are not permitted to bill Medicare for medical care and services for which the clinical trial sponsor has agreed to pay. Here, the United States and the State of Georgia alleged that Emory University billed Medicare and Medicaid for services the clinical trial sponsor agreed to pay (and, in some cases, actually did pay, thereby resulting in Emory’s being paid twice for the same service).
But we are a State University, so it doesn’t apply, right?
• Oberg v Pennsylvania Higher Education Assistance Agency, et al., No. 12-2513 (4th Cir. March 13, 2014 )– Do defendant student loan agencies constitute an
“arm-of-the-state” and, therefore, state agencies who were not subject to suit under the Federal False Claims Act, 31 U.S.C. §§ 3279 et seq. (“FCA”).
– The Fourth Circuit applied the four-part “arm-of-the-state” analysis and found that at least one of the defendants was not an “arm-of-the-state”, in part due to such factors as the entity’s segregation of funds from state funds and actual independence from state control, and thus was subject to suit under the FCA.
So how does a research institution get involved with this?
• Private Individual can Receive an Award for Blowing the Whistle? – Private individuals (called “Relators”) are offered a
“bounty”– By filing a False Claims Act lawsuit, a private party can
obtain part of the recovery under the Act. – These are called “Qui Tam” actions– However, merely informing the government will not
result in any reward and may leave the person open to retaliation without the protection of the statute and without any rewards
What are the penalties under the Federal False Claims Act
Civil Penalty (Per False Claim)– Not less than $5,000; Not more than $11,000*
Plus– Treble damages(Double damages if cooperate and no criminal
proceeding)– Also liable for costs to government in bringing civil
action*After listing the seven types of conduct that result in FCA liability, the statute provides that one who is liable must pay a civil penalty of between $5,000 and $10,000 for each false claim (those amounts are adjusted from time to time; the current amounts are $5,500 to $11,000) and treble the amount of the government’s damages. Where a person who has violated the FCA reports the violation to the government under certain conditions, the FCA provides that the person shall be liable for not less than double damages.
Government uses sampling to vastly increase liability
EXAMPLE: • MD Bills 50 Level “5” Cases That Should Have Been Level “3” ($60
Difference)• “Pattern or Practice” Established• 50 X $10,000 (max. Penalty) = $500,000• ($60 X 50=$3,000) X (3) = $9,000• Total Payback Could be up to $509,000 on a $3,000 “Overbill”• Plus cost to Government in bringing action/Attorney Fees(Qui
Tam)
Overview of litigation process• What Happens after the Case is Filed?• Complaint is filed in federal district court• Plaintiff (Bounty Hunter) serves a copy of complaint and
disclosure statement to the appropriate government representative
• Case remains under confidential seal for at least 60 days (for federal cases).– This 60-day confidential seal period may be extended if the
government requests it. It is not unusual for the seal period to last a few years.
– During the confidential seal period, the government investigates allegations.
– At the end of the seal period, the government can choose to proceed on its own (to intervene) or to allow individual to prosecute the case without government assistance. The government may change its mind and intervene later or withdraw from intervention.
Overview of litigation process
• What Happens after the Case is Filed?
• If the government decides to intervene, it has primary responsibility for prosecuting the case.
• After the government decides whether to intervene and the confidential seal period ends, the complaint is served on the defendants.
• The lawsuit then proceeds in the same way as any other federal civil litigation, except for a few special procedural issues related to this type of litigation.
What is the “First to File” Requirement?
• If the Government or another private party has already filed a False Claims Act lawsuit based on the same allegations as the case the bounty hunter wants to file, then that person may not proceed with lawsuit.
Who and What Can Be Held Liable
• The Federal False Claim Act includes any “person.” The term “person” can include an individual, corporation, city, county and many other legal entities, all of whom may be sued for filing false claims against the United States.
• Most state false claim law is the same, except for local governments (cities and counties). Often they cannot be sued for under the state False Claims Act. Some government entities can be sued under the Federal Act.
Sovereign Immunity
• What About a City or County Wasting Money?• The FCA does not define the term “person,” but the
Supreme Court has concluded that it does not cover states. • Vermont Agency of Natural Resources v. United States ex
rel. Stevens, 529 U.S. 765 (2000), the Court held that the word “‘person’ does not include the sovereign” and, thus, does not “does not subject a State (or a state agency) to liability.”
• But, the Supreme Court held that corporations are “presumptively covered by the term ‘person’” and, as a result, municipal corporations—i.e., cities and counties—are “persons” subject to suit under the FCA. Cook County v. United States ex rel. Chandler, 538 U.S. 119 (2003).
United States ex rel. King v. Univ. of Texas Health Sci. Ctr.
• Qui tam claims were properly dismissed• University of Texas Health Science Center-
Houston (UTHSCH) was an arm of the state and was not a person under the False Claims Act since all of the Clark factors except the ability to sue and be sued in its own name weighed in favor of UTHSCH being an arm of the state.United States ex rel. King v. Univ. of Texas Health Sci. Ctr., 544 Fed. Appx. 490 (5th Cir. Tex. 2013)
• certiorari denied by United States ex rel. King, 2014 U.S. LEXIS 2287 (U.S., Mar. 31, 2014)
Who Can File a Whistleblower Case
• Employees and Former employees – The law protects employees who file an action, or who assist in
furthering an action, against job retaliation by the employer.
• Competitors and Subcontractors A competitor (or its employee) who has direct knowledge of the fraud may file suit.
• Federal Employees The Federal Act does not specifically exclude federal employees.
• Public interest groups, corporations and other private organizations – Questions as to whether organizations can meet the “public
disclosure” provision of the law. Some courts have dismissed organizations as whistleblowers for not being able to meet that provision.
Can Participants in the Fraud Blow the Whistle?
• “Close observers” and even participants in a fraud may blow the whistle and receive compensation for their efforts. The federal law permits a court to reduce the reward to a wrongdoing whistleblower “to the extent the court considers appropriate.”
• However, if one has participated in any fraud against any government they must stop and begin the qui tam process. One can’t continue to commit fraud and still benefit.
What’s in it for the whistleblower
• “Successful whistleblowers are well compensated for their efforts. – Federal government has paid over $100 million in
whistleblower reports. Significant rewards in the first half of 2009 included: $45 million (Quest Diagnostics $300 million recovered by government), $46 million (Cephalon $256 million recovered), $20 million (NetApp $128 million recovered), $49 million (Northrop $325 million ), and $78 – $100 million (Eli Lilly, $1.4 billion).
What’s in it for the whistleblower
• Federal False Claims Act:– If the whistle-blower succeeds with the case on his/her
own, the amount will be between twenty five and thirty percent (25%-30%) of the total amount recovered. If the Government chooses to pursue the case itself (called “intervention”), then the reward to the whistleblower will be fifteen to twenty five percent (15% to 25%), depending upon the whistleblower’s contribution to the prosecution of the action. The whistleblower’s reasonable fees and costs may also be recovered.
• A court will deny any share of an award if a whistleblower is convicted of criminal conduct arising from the wrongdoing alleged in the lawsuit.
Public knowledge
• If knowledge of the fraud is based on a newspaper article then the “relator” is not the “original source” of the information.
• If government agent already knows of fraud, then relator cannot be original source, so if one reports first, the chance for a FCA suit is gone.
Can Whistleblowers Get Fired?• Yes.
– However, in most cases if you are fired for exercising your rights under the state or federal laws you can sue for retaliation and request the courts to reward you your lost wages, additional penalties, legal fees and costs.
• The Federal False Claims Act prohibits an employer from harassing or retaliating against an employee for attempting to uncover or report fraud on the federal government.– If retaliation does occur, the employee (or former employee) may
be awarded “all relief necessary to make the employee whole,” including reinstatement, back pay, two times the amount of back pay, litigation costs, and reasonable attorney fees.
• Most State False Claims Act provides similar protections. In addition, many states have wrongful discharge or other employment laws that may provide remedies for such retaliation.
Can the Relator keep identity a secret
• NO– The Government will know identity, and relator’s
name will likely be disclosed to the defendant at some point.
– During the initial confidential seal period, the defendant is not supposed to learn of the lawsuit.
– After the confidential seal period ends in nearly all cases the complaint is served on the defendant and relator’s identity will be revealed to the defendant.
Department Of Justice Criminal Division Will Increase Its Review Of False Claims Act
Cases For Criminal Prosecution
• Speech before the Taxpayers Against Fraud Education Fund conference in Washington, D.C.– Leslie R. Caldwell, Assistant Attorney General for the Department
of Justice's (DOJ) Criminal Division, announced that DOJ will step up review of False Claims Act (FCA) qui tam complaints for potential criminal prosecution.
• All new qui tam complaints are shared by the Civil Division with the Criminal Division as soon as the cases are filed.
• “… cases involving fraud by executives at health care providers, such as hospitals, are [ ] a high priority" and DOJ may increasingly bring criminal charges against corporate entities.
In February 2000, the University Medical Center of Tucson agreed to pay $309,000 to settle a federal ‘qui tam’ lawsuit filed in Arizona. The suit alleged the University overcharged for outpatient clinical laboratory services in part by double-billing.
Northwestern University paid es $2.93 million to settle claims of cancer research grant fraud by a former researcher and physician who allegedly submitted false claims under research grants from the National Institutes of Health.
United States of America ex rel. Daniel Feldman v. Wilfred van Gorp and Cornell University Medical College, No. 10-3297 (2d Cir. Sept. 5, 2012), did not end well for Cornell University.The district court awarded actual damages in treble the amount NIH paid Cornell -- for a total of $855,714. The district court also imposed statutory penalties of $32,000, $25,862.15 in costs, $3,121.47 in expenses, and $602,898.63 in attorneys’ fees.
False Claims Act: Violations
False Claims Act: Violations• Lawrence Livermore Lab and the University of
California agreed to a $3.9 million settlement for mischarging on energy research projects. The case began when Michelle Doggett told supervisors and university investigators of improper charges to energy research accounts. Doggett said managers began alienating her, reassigning her from overseeing research funds and eventually driving her to resign. The university paid her $1 million to settle her claims of whistleblower retaliation.
