Key Whistleblower Changes in Bipartisan Budget Act

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The Bipartisan Budget Act of 2018, passed overnight and signed this morning by President Trump to end the second federal government shutdown of this year, includes two key provisions for whistleblowers previously introduced by Senator Charles Grassley but removed from the January budget deal.

For IRS whistleblowers, the law clarifies the term collected proceeds to include criminal fines and civil forfeitures as well as violations of reporting requirements. The IRS has previously taken the position that tax whistleblowers are only eligible for rewards based on fines pursuant to Title 26. This interpretation was rejected by the U.S. Tax Court last year and the Government appealed to the D.C. Circuit to reverse the decision. This section essentially resolves that appeal and affirms the U.S. Tax Court decision giving a broad definition to the term.

The legislation will also unify the tax treatment of whistleblower awards for the major laws. For some time, whistleblowers awarded money under the Federal False Claims Act and IRS whistleblower program were entitled to an above-the-line tax deduction for their attorney fees. The tax deduction did not clearly extend to CFTC and SEC whistleblowers, or rewards under the State False Claims Acts. These awards were subject to taxation of the entire amount received by the individual and then again for the amount paid by the client to the law firm.

In other words, IRC sections 62(a)(20) and 62(a)(21) allowed False Claims Act relators and IRS whistleblowers to only pay taxes for the amount received after paying their attorney fees. The law firm is responsible for paying tax on the amount of attorney fees that they are paid by their client. The legislation extends the above-the-line deduction to Dodd Frank Act whistleblowers and relators paid under the state False Claims Acts. Notably, it does not mention the Motor Vehicle Safety Whistleblower Act, which was

We have discussed these issues several times on this blog since the Grassley Amendments were initially introduced into the Senate’s Tax Cuts and Jobs Act in November 2017. If you have questions about these or other aspects of the whistleblower laws, please call 1-800-590-4116 to speak to a McEldrew Young whistleblower attorney.

False Claims Act Whistleblowers Paid $392 Million in Fiscal Year 2017

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The Department of Justice recovered more then $3.7 billion in settlements and judgments in Fiscal Year 2017 from the False Claims Act according to the press release issued last week. The majority of the funds recovered were in lawsuits initiated by whistleblowers. Qui tam lawsuits led to $3.4 billion of the $3.7 billion in settlements and judgments.

Whistleblowers received $392 million during FY2017 for bringing fraud to the attention of the United States and the Department of Justice. Whistleblower awards were down from last year, when the United States paid out $519 million to whistleblowers based on the recovery of $2.9 billion. The False Claims Act provides for awards of between 15 and 30 percent of funds recovered from False Claims Act lawsuits.

There were 669 qui tam lawsuits filed during the last fiscal year. The number is the fourth highest on record since the 1986 amendments of the False Claims Act. This number was down from Fiscal Year 2016, when there were 702 qui tam lawsuits filed. The highest number of new matters filed by whistleblowers was in Fiscal Year 2013. Many of these cases will still be working their way through the legal system as government investigations into matters may take years before litigation starts in earnest.

The majority of the funds recovered by the federal government in FY 2017 were from the health care industry. The government recovered $2.4 billion from health care fraud, the eighth consecutive year that civil health care fraud settlements and judgments exceeded $2 billion. These funds have usually been taken inappropriately from Medicare or Medicaid, although there are other federal funded health care programs that lose money from health care fraud such as TRICARE, which is the managed service healthcare program for service members, reservists and their dependents.

Over $900 million in recoveries were from the drug and medical device industry. The government’s press release cited settlements by Shire ($350 million) and Mylan ($465 million) as examples. Other health care lawsuit settlements mentioned were Life Care Centers of America ($145 million) and eClinicalWorks ($155 million).

The Government reported settlements and judgments of $543 million from housing and mortgage fraud in FY 2017. The press release specifically mentioned a jury verdict of $296 million against Allied Home Mortgage as well as settlements with Financial Freedom ($89 million) and PHH Mortgage ($65 million).

There were a variety of other matters resolved under the False Claims Act in FY 2017, including procurement fraud, grant fraud, fraudulently obtained small business contracts, and fraudulently obtained government subsidies for discounted mobile phone services to low-income consumers.

The recoveries detailed by these numbers include around 8.5 months during the Trump Administration and 3.5 months during the Obama Administration as the United States fiscal year runs from October 1, 2016 to September 30, 2017. In total, the United States has recovered more than $56 billion since 1986 when Congress amended the civil False Claims Act.

Latest Settlement Reveals Mortgage Fraud Continued Years After Financial Crisis Ended

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We are reaching the end of a decade since mortgage fraud hit its peak in 2007. However, the latest settlement by IberiaBank suggests that at least one lender continued aspects of mortgage fraud against the Federal Housing Administration (FHA) well after becoming informed of their wrongdoing.

IberiaBank agreed to pay the United States more than $11 million in response to allegations that it did not comply with federal requirements on FHA mortgage loans. The settlement resulted from allegations made under the False Claims Act by whistleblowers who were formerly employed at the bank.

Similar to other allegations against banks during the financial crisis, IberiaBank admitted that certain loan files contained inadequate documentation on income, inadequate verification of the down payment, and unresolved appraisal discrepancies.

The most disturbing part of the allegations is that the bank told HUD that it was no longer paying underwriter commissions after a HUD review in 2010 notified IberiaBank that it was not in compliance with a prohibition on underwriter commissions. Nevertheless, the bank did not disclose that it was making incentive payments to underwriters. These payments continued to be made by the bank until 2014. As a result, the period of covered conduct for the settlement was from the beginning of 2005 until the end of 2014.

IberiaBank is not the only one to be in the news recently for problems in its mortgage department. Wells Fargo is in the process of refunding rate-lock extension fees assessed to mortgage borrowers where the delay was due to its practices. President Trump recently denied media reports that the U.S. was going to let Wells Fargo off the hook without a fine for falsifying records to blame the mortgage-processing delays on the consumers borrowing money. Instead, President Trump suggested in a tweet that while he has promised to cut regulations, penalties for those caught cheating would be severe.

According to media reports, Wells Fargo said that it assessed around $98 million in rate-lock extension fees, although it contends some of those were legitimate. Wells Fargo has already paid around $200 million in fines and penalties following allegations which emerged last year that it opened millions of fake accounts on behalf of customers.

If you are a current or former mortgage industry professional with evidence of lending fraud involving FHA loans, call our mortgage whistleblower attorneys at 1-800-590-4116 for a free, confidential initial consultation.

Aegerion Settles REMS and Patient Assistance Program Allegations in FCA Lawsuit

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We learned last week that the first settlement of claims in the government’s ongoing investigation of ties between pharmaceutical manufacturers and patient assistance programs happened in September when Aegerion Pharmaceuticals agreed to pay more than $35 million to resolve criminal charges and a civil False Claims Act lawsuit.

The settlement related to the marketing of Juxtapid, a lipid-lowering agent for the treatment of familial hypercholestrolemia, a rare disorder that causes abnormally high levels of circulating LDL-C. There were many facets to the allegations, including that the drug was misbranded because Aegerion failed to comply with a Risk Evaluation and Mitigation Strategy (REMS) set by the FDA. There have been a handful of settlements for the failure to comply with the terms of a REMS program by manufacturers recently.

As it relates to patient assistance programs, the government alleged in the civil false claims act lawsuit that the company violated the Anti-Kickback Statute by funneling funds through an entity claiming to be a non-profit patient assistance program in order to defray patient’s copayment obligations.

The Anti-Kickback Statute prohibits the offer, payment or receipt of any remuneration to induce or reward the referral or generation of business reimbursed by a Federal health care program. The copayment obligations are designed to promote prudent prescribing and purchasing decisions as well as price competition. Waiving the copay, either through copayment coupons or patient assistance programs, can ultimately harm the Federal health care programs even though they provide an immediate financial benefit to the patient beneficiary.

As we understand it, the government patient assistant program investigation started because there were allegations that the nonprofits receiving funds from the pharmaceutical manufacturers and allocating the money to patients were not exercising independent decision-making. Instead, the investigations reportedly involved a quid pro quo between the donation by the pharmaceutical company and the allocation of the money to patients receiving the manufacturer’s drug.

We will continue to follow the government’s involvement in False Claims Act litigation concerning REMS and copay assistance programs here.

Wisconsin False Claims Act Repeal Costs State $11 Million

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The Wisconsin Center for Investigative Journalism has estimated that the state of Wisconsin gave up $11 million when it weakened the Wisconsin False Claims Act and then repealed it as part of the 2015-2017 budget process.

The Federal False Claims Act, 31 U.S.C. § 3729 et. seq., is the nation’s leading law fighting fraud. Several billion dollars are recovered through it by the Justice Department every year. It has been used to fight health care fraud, mortgage fraud and government contract fraud, among others.  In cases where money is recovered from fraud against both the federal and state governments, such as Medicaid fraud, the United States offers additional money to those states which have their own version of the False Claims Act. In Wisconsin, it was adopted in 2007 and called the False Claims for Medical Assistance Act.

When Wisconsin Governor Scott Walker signed the state’s budget on July 12, 2015, a provision in the budget repealed the False Claims Act. In doing so, Wisconsin became the first state to repeal its state False Claims Act. There were no public discussions or hearings on the repeal of the law according to news reports at the time. After it happened, a spokeswoman for the Wisconsin Attorney General reportedly said that there were numerous laws allowing the state to prosecute Medicaid fraud and the repeal would not have much impact.

Although there are other laws targeting fraud, none provide for incentives to whistleblowers. According to the Association of Certified Fraud Examiners, whistleblowers are the number 1 method for identifying waste, fraud and abuse in government and the private sector. The 2016 Global Fraud Study published by the group estimates that 40 percent of misspending is caught through whistleblower tips.

Wisconsin joined Pennsylvania in the minority of states without a state version of the False Claims Act. Pennsylvania has from time to time considered adopting one, but has not passed it yet. In March of this year, PA State Rep. Brandon Neuman reintroduced the Taxpayer Protection Against Fraud Act in the Pennsylvania House. It is estimated that Pennsylvania loses $200 million a year through Medicare and Medicaid fraud and abuse.

Grassley Proposes Whistleblower Amendments to Senate’s Tax Cuts and Jobs Act

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Senator Grassley has proposed 15 amendments to the Senate bill for the Tax Cuts and Jobs Act. Two of those amendments are important to whistleblowers, so we are going to examine them in more detail here.

Amendment #1 from Grassley is intended to unify the tax treatment of whistleblower awards. The amendment seeks to extend the current above-the-line deduction available to successful whistleblowers under the Federal False Claims Act and IRS whistleblower program for attorney fees and court costs to other whistleblower programs.

What is an above-the-line deduction? It means that the US does not require the whistleblower to pay tax on the entire award (before subtracting out the portion paid under the False Claims Act or Internal Revenue Code Section 7623 (IRS Whistleblower program). This is provided for in IRC section 62(a)(20) and 62(a)(21).

If there is no above-the-line deduction, then the whistleblower pays tax on the entire amount of the reward as income and then the attorney would separately claim and pay taxes on the portion they are paid for fees as income.

The amendment would eliminate double taxation for the rewards under the State False Claims Acts, the SEC Whistleblower program, and the CFTC Whistleblower program.

Interestingly, the summary of the amendment does not mention the Motor Vehicle Safety Whistleblower Act, which was enacted in December 2015 as part of the FAST Act. This auto whistleblower law created a program at the Department of Transportation, likely to be handled by the NHTSA. As far as we have seen, the Department of Transportation has yet to issue the implementing regulations for it through. However, the NHTSA is accepting whistleblower tips according to its terms, which provide for submissions before the adoption of the final rules. We’ll be keeping a close eye when the precise language of the amendment is avaiable

Since the firm’s engagement letters do not cover tax advice on rewards and this is a complicated area of the law, we are unable to answer questions about specific situations. However, we do wholeheartedly support this amendment to avoid double taxing whistleblower award payments.

Amendment #2 by Grassley would clarify an important area of the IRS whistleblower program that has resulted in litigation in the U.S. Tax Court over the past few years. The amendment would define the term “proceeds” in IRC section 7623.

The proposed definition is: “(A) taxes, penalties, interest additions to tax, and additional amounts provided under the internal revenue laws, and (b) any proceeds arising from laws for which the Internal Revenue Service is authorized to administer, enforce, or investigate including (i) criminal fines and civil forfeitures, and, (ii) violations of reporting requirements.”

This word has been a point of contention because the U.S. is only required to pay out awards as a percentage of collected proceeds. The IRS interpretation has defined this term broadly, to exclude certain money collected by the IRS in enforcement actions. In a U.S. Tax Court lawsuit decided last year, the IRS took the position that only fines pursuant to Title 26 were collected proceeds. However, the Tax Court sided in favor of an expansive definition for whistleblowers.

Senator Grassley clearly wants to make sure that there is no more confusion over the desired scope of the whistleblower program, and has given it a broader definition than provided for in last year’s opinion. The adoption of this change would be in the interest of tax whistleblowers and we support it as well.

We’ll be closely following these amendments as their full text is published and they are debated.  Stay tuned!

DOJ Announces Largest Hospice Fraud Settlement Ever – $75 Million

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The Justice Department announced the resolution of a False Claims Act lawsuit with a $75 million settlement by Chemed Corporation and various wholly-owned subsidiaries, including Vitas Hospice Services. The settlement is the largest amount ever recovered under the False Claims Act from a provider of hospice services, according to Acting Assistant Attorney General of the Civil Division, Chad A. Readler.

Vitas is the largest for-profit hospice chain in the United States, operating 51 for-profit hospice programs in 18 states. Historically, around 90% of Vitas’ revenue is derived from Medicare. Chemed acquired the Vitas-affiliated companies in 2004.

CRISIS CARE

Crisis care is designed to allow a hospice provider to assist with the management of uncontrolled symptoms during a short period of time to return the patient to a state of comfort. It provides for around-the-clock care for up to 24 hours, with its appropriateness reassessed every 24 hours.

The lawsuit alleged that the Defendants submitted or caused false claims for crisis care services that were not provided to patients, that were inappropriately provided, or were not medically necessary because the patients were not in crisis during the periods that the Defendants claimed. According to the complaint filed by the United States, Vitas misled patients through their marketing materials to believe that patients would routinely receive “intensive comfort care” paid for by Medicare without informing them of the required acute medical symptoms. Vitas also used this marketing technique with potential referral sources.

According to the allegations in the complaint, Vitas not only distributed materials that incorrectly informed staff how and when to initiate crisis care, but the companies set aggressive goals for billing Medicare for crisis care. One nurse stated that she was sent to the home of patients for crisis care to find them not in crisis on more than one occasion. In one instance where crisis care rates dropped, Vitas’ Vice President of Operations sought an analysis of what caused the drop and how the location will correct it.

The complaint also alleges that Chemed and Vitas knew through regular internal audits that patients did not qualify for crisis care which they received or that the crisis care was inconsistent with the patient’s plan of care. Defendants were also aware that their Medicare reimbursement for crisis care far exceeded the rest of the hospice industry.

In many cases, according to the allegations, the care billed as “crisis care” by Vitas was simply a part of routine home care services. In total, the United States listed seven patient examples of this conduct.

END OF LIFE CARE

It is well known that Medicare requires hospice patients to be terminal and have a life expectancy of 6 months or less. Hospice care is designed to provide end-of-life comfort and is not designed for patients still seeking a cure or who may live for years.

According to the allegations, Vitas also admitted patients who did not need end of life care and billed Medicare for them. Managers at Vitas’ headquarters set aggressive admissions goals and made focused inquiries when admission numbers were low. They also evaluated general managers of each program based on its profitability and as a result the program managers often disregarded nurse and doctor concerns regarding patients who were not terminally ill.

Vitas similarly evaluated marketing representatives based on meeting their admission goals and paid bonuses based on enrollment into the program. The company philosophy, according to one former hospice manager, was to sign everybody up. Medical staff also reported that they felt pressured to admit or readmit patients who were inappropriate. Another nurse reported that the goal at discharge meetings was to disregard as few patients as possible without regard to the appropriateness of care. One doctor even reported that he was overruled on several occasions when he did not certify patients as eligible for hospice.

The United States offered seven patient examples for the allegations that Defendants billed hospice care for patients who did not meet the Medicare requirements.

THE FALSE CLAIMS ACT LAWSUITS

There were three whistleblower lawsuits filed against one or more of the companies involved in the settlement. The United States intervened in the lawsuits and transferred them to the Western District of Missouri, where they were consolidated with a lawsuit filed by the United States against the Defendants. As part of the settlement, Vitas entered into a five-year Corporate Integrity Agreement.

If you have evidence of hospice fraud occurring at another health care provider, call 1-800-590-4116 for a free consultation with a McEldrew Young False Claims Act attorney.

OIG Alert Details Elder Abuse at Skilled Nursing Facilities

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The Office of the Inspector General (OIG) issued an Early Alert in late August following disturbing reports of abuse against Medicare Beneficiaries during stays in Skilled Nursing Facilities (SNFs). The Alert explained that an estimated 22 percent of Medicare beneficiaries experienced adverse events while at an SNF and 69 percent of these incidents could have been prevented with better care.

Elder abuse can take many forms, including sexual assault, pressure ulcers, medication-induced bleeding and infections. According to OIG, more than half of the Medicare beneficiaries experiencing an adverse event required hospital care for treatment.

OIG also found that a significant number of instances involving abuse or neglect may not have been reported to law enforcement. SNFs are required to ensure that the administrator of the facility receives reports of abuse, investigate the allegations, and report the results to the administrator within 5 days. Local hospitals are also required to report potential incidents of abuse or neglect. Notwithstanding these requirements, OIG found 38 out of 134 incidents (28 percent) where there were no evidence in hospital records that the incident was reported to local law enforcement.

OIG also declared CMS procedures inadequate to ensure incidents are reported. Section 1150B of the Social Security Act provides that certain individuals in federally funded long-term care facilities must report immediately any reasonable suspicion of a crime against a resident of the facility. The failure to report an incident can bring civil monetary penalties of up to $300,000 and possible exclusion from Federal health care programs. But Centers for Medicare and Medicaid Services (CMS) has not been enforcing this law, which became effective on March 23, 2011.

There are a few potential legal remedies for victims. For those who are seriously injured, a personal injury lawsuit to seek compensation is a possibility. This is an option where there is negligence or a deviation from the standard of care on the part of the medical professionals.

For employees or residents of facilities consistently providing inadequate care to Medicare and Medicaid patients, reporting through the False Claims Act is also an option. The False Claims Act allows for an individual to bring a lawsuit on behalf of the United States seeking return of money spent by the Government due to fraud. The government is paying a fee for the care of these individuals and when that care falls below the government’s expectation of care, it can be a violation of the law.

If you are aware of an skilled nursing facility providing inadequate care or a family member has been a victim of elder abuse, please call the attorneys of McEldrew Young at 1-800-590-4116 for a confidential consultation.

Corporate Policing: The Evolution of Whistleblowing

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Whistleblowing has traditionally involved insider reports of corporate wrongdoing by employees of a business. A recent whistleblower lawsuit may signal the start of a new era in the False Claims Act as businesses begin to turn in their unethical competition to the U.S. Government in order to preserve fair competition in the marketplace (and earn a bounty for their help).

This is something that we have discussed internally here at McEldrew Young but came to life recently in a spectacular fashion. In mid-August, the United States announced a whistleblower award of $38.7 million to Sanofi-Aventis, a global life sciences company, from the $465 million settlement by Mylan. The settlement resolved a government investigation into allegations made by Sanofi-Aventis that Mylan misclassified the EpiPen as a generic drug to avoid paying Medicaid rebates.

The announcement was unusual in that the United States paid Sanofi, far from the typical whistleblower. It has had at least two other run-ins with the False Claims Act, and Sanofi paid out nearly $130 million as a result. But there is no prohibition on a corporation turning in its competitor via the False Claims Act – even if it has been a defendant previously in a different action.

Sanofi-Aventis no doubt learned that Mylan was breaking the law because it also had a product in the epinephrine injection field: the Auvi-Q. It is the main competitor to EpiPen, and reportedly not nearly as popular.

Based on the date of the False Claims Act complaint, it appears that Sanofi filed the whistleblower lawsuit before the topic hit the media last year. The price of the EpiPen became national news last August and September due to the alarming price hikes that would become the subject of a congressional investigation.

A Sanofi spokeswoman told CNBC that the whistleblower award would be split (in an unstated fashion) between itself and another whistleblower, Ven-A-Care, a pharmacy that previously made hundreds of millions of dollars turning in pharmaceutical companies for best price violations.

The United States has long provided for private enforcement of the nation’s antitrust laws through a private cause of action to businesses injured by the violation. A prevailing plaintiff can earn treble damages plus a reasonable attorney’s fee for a successful lawsuit. The False Claims Act also provides for treble damages, but hasn’t typically been used by corporations to turn in their competition when they are engaged in misconduct. Times may be changing.

Employees will obviously remain an important source of information about corporate wrongdoing. But business competitors typically also have a great deal of information about what their competition is doing. As well as if they are doing it legally or illegally. They are also not subject to the same concerns about retaliation (if they are conducting their business legally).

Can you imagine how quickly fraud in healthcare and investment banking would be cleaned up if other businesses took the same stand as Sanofi and turned in their competitors when they break the law?

If you own or run a business considering reporting a competitor for violating the law, call our False Claims Act attorneys at 1-800-590-4116 for a free, confidential initial consultation.

DOJ Probing Electronic Health Record Vendors for Fraud

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The Department of Justice is expected to investigate electronic health record (EHR) software providers for health care fraud following allegations against a major player that resulted in a $155 million settlement under the False Claims Act for skirting meaningful use regulations.

In a recently released video, a Senior Counsel at the Office of the Inspector General called false statements during certification and manipulation of the certification process by EHR vendors “an entirely new area of healthcare fraud.” Although the government is not expected to pursue hospitals that used the software in good faith, the United States seems willing to pursue vendors for false certifications and statements that could have a detrimental impact on patient care.

The United States offers incentive payments to healthcare providers that adopt certified EHR software and meet certain meaningful use requirements, as set forth in the American Recovery and Reinvestment Act of 2009. Companies that sell EHR software must attest that it satisfies criteria set by the Department of Health and Human Services as well as pass testing by an approved, accredited independent certifying entity.

Earlier this year, eClinicalWorks agreed to pay $155 million to resolve allegations brought under the False Claims Act that it misrepresented the capabilities of its software and paid kickbacks to customers for promoting the product. The government complaint alleged that the software did not comply with the standards for certification, because it could not retrieve a drug code from a complete database, did not accurately record user actions in an audit log, did not perform drug interaction checks, and failed to satisfy data portability requirements.

Individuals that report evidence of healthcare fraud through the False Claims Act may be eligible for rewards of between 15 and 30 percent of the government’s recovery. In the case against eClinicalWorks, the whistleblower received $30 million. If you have evidence of fraud by an EHR vendor, please call for a free initial and confidential consultation with Eric Young or another False Claims Act attorney at McEldrew Young.

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