SEC Issues Annual Whistleblower Report for 2017

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The annual SEC whistleblower report to Congress for Fiscal Year 2017 has been released. It provides information and data about the activities of the SEC Whistleblower Office (referred to in the report as OWB) from October 1, 2016 to September 30, 2017. Over the year period, the SEC received over 4,400 whistleblower tips during Fiscal Year 2017 and paid out awards totaling nearly $50 million. The SEC also brought a number of enforcement actions to address companies that unlawful retaliated against or impeded whistleblowers.

The SEC has now paid our approximately $160 million to 46 whistleblowers since the Dodd-Frank Act created the SEC whistleblower program. Three of the top four awards were announced in 2016 and two of the top 10 awards were announced in 2017. All three awards from FY2017 that were on the top 10 list involved the protection of investor funds.

As has been the case in several other reports, the annual report provided select anonymized data about the successful whistleblowers. Here is some of the data that we found interesting:

  • Two-thirds of them provided the impetus for the SEC to open the investigation. One-third of the paid whistleblowers assisted with an already-existing investigation.
  • About 62 percent of award recipients were current or former insiders of the entity they reported. Other types of insiders such as consultants or close affiliates, industry professionals, harmed or prospective investors, and other outsiders made up the rest.
  • Of the current or former employees, almost 83 percent raised their concerns internally to their supervisors, compliance personnel, through internal reporting mechanisms, or understood that one or more of these individuals were already aware of the information before they reported to the SEC.
  • The majority of individuals were represented by legal counsel at the time they initially submitted their tips to the SEC.
  • In cases resulting in awards, individuals represented 47% of the defendants, unregistered entities and companies 25%, and registered entities such as broker-dealers, investment advisors and other registered market participants were 28% of defendants
  • Nine recipients were foreign nationals or residents of foreign countries when they submitted tips.

The SEC also provided a chart of the percentage of primary securities violations in covered actions assisted by whistleblowers. Here is a summary of the chart:

Misrepresentations/omission violations: 28%
Corporate/issuer disclosure (i.e., FCPA, accounting and offering document issues): 22%
Offering fraud (including Ponzi and pyramid schemes): 22%
Trading violations (including insider trading): 11%
Sales and advisory practices violations: 8%
Other (including operational, registration and fees/markups/commissions violations): 9%

Breakdown of Whistleblower Tips Submitted in FY2017

We can also take a look at the division of tips going into the SEC according to the whistleblower’s own characterization of the violation type:

Corporate Disclosures and Financials: 954
Offering Fraud: 758
Manipulation: 468
Trading and Pricing: 271
Insider Trading: 231
FCPA: 210
Unregistered Offerings: 144
Market Event: 125
Municipal Securities and Public Pension: 67

Breakdown of International Tips

The SEC received tips in FY 2017 from individuals in 72 foreign countries. The top five countries outside of the United States for tips were:

United Kingdom: 84
Canada: 73
Australia: 48
China: 39
Mexico and Russia: 26 (tied)

Tips by State

The leading states for tips within America were:

California: 500
New York: 438
Texas: 250
Florida: 229
New Jersey: 175

The Chief’s Annual Message

The message from Jane Norberg, chief of the Office of the Whistleblower, at the beginning of the report specifically mentioned the “critical role of whistleblowers” in protecting investors. Since its inception, whistleblower tips have helped recover $671 million in disgorgement, the majority of which has or is scheduled to be returned to harmed investors. The focus on this role continues the message sent by the Enforcement Division last week in its report that protecting retail investors was a top priority of the securities regulator.

The other key aspect of Norberg’s message was Rule 21F-17 and the SEC’s enforcement of the whistleblower protections. We have written about these SEC regulation here before. Rule 21F-17 prohibits impeding communications between the SEC and whistleblowers. During the last fiscal year, the SEC brought a number of enforcement actions against corporations for efforts to uncover the identity of whistleblowers or restrictive language in severance and separation agreements. The SEC also independently brought an enforcement action for terminating an employee in violation of the Dodd-Frank whistleblower anti-retaliation provisions. Norberg said that reviewing allegations of violations of these laws would “continue to be a focus … in the upcoming fiscal year to ensure that whistleblowers can free report information … without fear of reprisal.”

The other area that was mentioned was the office’s hotline. Since the whistleblower hotline was established at the SEC, the OWB has returned over 18,600 calls from the public. In the last fiscal year, it returned nearly 3,200 calls, an increase over FY2016. We have found this to be a very helpful service that the SEC provides for whistleblowers and their attorneys.

The report also discusses the efforts of the Whistleblower Office on behalf of whistleblowers in federal court cases involving anti-retaliation provisions. It specifically mentions the U.S. amicus curiae brief filed in the Supreme Court in Digital Realty Trust, Inc. v. Somers, which is to be heard by the Court at the end of this month. Somers provides the Court the opportunity to hold that a whistleblower is protected by the Dodd-Frank anti-retaliation provisions even if they only reported internally to a manager or supervisor rather than file a Form TCR with the SEC.

The 2017 annual report is the second issued by Jane Norberg after she succeeded Sean McKessy. It marked the first full year of her leadership at the OWB. McKessy announced that he was leaving the SEC Office of the Whistleblower in July 2016.

Update

The SEC also released its financial report recognizing a contingent liability of $221 million for the year ending on Sept. 30, 2017.  This means that the SEC expects that additional whistleblower awards are probable in that amount.  The awards have not been announced yet and there is no indication at what stage the SEC will recognize a future payout as a contingent liability.

Our Offer

As always, our attorneys are available for a free, confidential initial consultation with potential SEC whistleblowers.  Please call 1-800-590-4116 to speak to an SEC whistleblower attorney at McEldrew Young.

WSJ Reports Ontario Securities Whistleblower Tips Against Major Private Equity Firm

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Since the Ontario Securities Commission opened its whistleblower program to tips, at least four individuals have filed complaints against one of Canada’s largest private equity firms according to the Wall Street Journal. Officials at the Ontario Securities Commission and a unit of the Toronto Police Service have inquired about the matter with the multi-billion dollar investment firm at issue.

Last fall, only a few months after launching the program in July, the head of the Ontario Securities Commission said that there had been more than 30 tips detailing securities law violations and that some of them involved serious offenses or potential offenses in areas that the agency would never otherwise be able to find. One express target of the program is misstatements in accounting and disclosure violations. The potential reward for reporting securities law violations that result in total monetary sanctions of over $1 million

The OSC has been accepting whistleblower tips for just over a year now. Based on the history of the SEC program, it is still far too early to expect them to have announced a payout. If they follow the lead of the SEC, they may put out a report of the number of tips acquired through the program in its first year.

This would be an interesting statistic to see and contrast against British whistleblowers, which have been reporting to the Financial Services Authority in the United Kingdom in declining numbers. The FSA has twice declined to offer banking whistleblowers monetary rewards, opting instead for regulations that aim to protect against retaliation, such as the requirement of an internal whistleblower champion within companies.

The WSJ article details a bit about the methodology of the program in Canada. Ontario regulators send tips warranting review to the program’s inquiries team to conduct interviews research before deciding whether to formally open an investigation. Many of the complaints are dismissed without any further inquiry.

The investment firm denied any wrongdoing in a statement released after the WSJ article was published.

DOJ Hires Corporate Compliance Program Expert

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In the next few months, the DOJ will have a new member on the team evaluating corporate compliance programs for the determination of the appropriateness of prosecution and penalties under laws like the Foreign Corrupt Practices Act.

The Justice Department already has experts in subject matters such as accounting and forensics. The hiring of this candidate, who has been selected but is undergoing a background check, will be used in assisting the government’s determination of whether the company deserves a larger monetary penalty, or even no fine whatsoever, due to the ineffectiveness or strength of its compliance program.

The DOJ has previously told companies they will be rewarded under the FCPA for strong anti-corruption programs and the quick detection of improper payments through internal accounting controls. In a few different previous government declinations to prosecute under the FCPA, the DOJ has cited strong compliance efforts and self-reporting as reasons to not prosecute companies criminally.

Th creation of this position is likely in response to the growth in compliance programs at banks and large corporations. In order to avoid fines from regulators that are reaching into the billions of dollars, some banks are spending up to $4 billion a year to comply with laws and regulations. In early 2014, the Wall Street Journal called the Compliance Officer the hottest job in America.

Yet, even with the employment of more compliance professionals, companies are still violating the law. There have already been two awards to securities whistleblowers employed in a compliance or audit position. These individuals face a 120 day waiting period before they can become eligible for a reward when they report to the SEC whistleblower program.

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Doctor to Receive $18.1 Million for Reporting Illegal Contract Offer by Hospital

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Another hospital has settled allegations of violations of the Stark Law that were brought by a whistleblower lawsuit under the False Claims Act. This time, it was Tuomey Healthcare System, which had previously lost at trial, resulting in an order to pay $277 million for violations of the law, and in its Fourth Circuit appeal. It ultimately settled the case for $72.5 million from the South Carolina hospital system, which will be sold to Palmetto Health.

In this case, the hospital entered into contractual relationships with area specialty physicians after becoming concerned that it would lose referrals of surgical procedures from them. The part-time employment agreements required them to send their cases to Tuomey and paid bonuses based in part on their referrals. The Stark Law prohibits the payment of anything of value to physicians based on their referrals of business paid for by the federal healthcare programs. One of the individuals that Tuomey offered a contract to reported them to the Department of Justice.

Many people have the mistaken impression that only an individual who works for a company can bring a whistleblower lawsuit. This is not true. Any individual that has nonpublic information sufficient to demonstrate fraud can file a lawsuit. However, insiders are typically the most likely individuals to have such information so they have gotten. Job seekers, industry experts, consultants, competitors and other individuals can also report health care fraud to the U.S. Government.

The resolution to this case came after a long legal battle, with two trials in a U.S. District Court and two appeals. The first verdict led to an order of payment of $45 million for Stark Law violations but was overturned on appeal. The second jury found Tuomey liable for additional misconduct under the False Claims Act. Tuomey began exploring a sale of the company while facing the largest potential penalty levied against a community hospital. The board and management determined a sale was its best option due to financial difficulties. Based on the discounted recovery, it seems likely that the Justice Department took these into account when reducing the fine against the community hospital.

In September, there were two other hospital settlements of cases under the False Claims Act for kickbacks in violation of the Stark Law. These two settlements totaled almost $200 million in recoveries for the United States Government.

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Have Investors Been Harmed?

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One of the central questions that we ask in the evaluation of information from potential whistleblowers is whether there is real and actual harm as a result of the company or individual breaking the law. In other words, is it merely a technical violation of the law or are there substantial damages as a result of the corporate or individual misconduct?

In cases under the False Claims Act, the damage is often monetary as the Government paid for items from the public fisc and did not receive what it thought it was getting. For example, in the case of home health care fraud where the individual is not homebound, the Government is paying for more expensive services that the individual simply does not need. Sometimes, it can also involve harm to patients, although this is not required.

In cases involving tips from SEC whistleblowers, the harm is usually to investors. If misrepresentations are made to separate investors from their money, it can be a clear case for SEC action. An article on Investment News over the weekend identified retail investor fraud as a priority target of SEC Chairman Jay Clayton during his administration. Looking at the enforcement actions brought and settled by the SEC over the past few weeks, it is clear that most actions involve some sort of investor harm. Here are some of the actions from October and early November:

Penny Stock Fraud: Unregistered brokers were hired to pitch penny stocks based on nonexistent patents. Investors were told their money would fund R&D, but it in fact was used for personal expenditures and to pay sales commissions.

Improper Solicitation: Individual raising funds misled potential investors with false claims about a pending acquisition.

Accounting Frauds: Rio Tinto solicited substantial funds when failing to write down a bad investment. In another action, biotech company violated accounting rules to improperly recognize revenue and make it appear to investors that revenue was growing steadily.

Improper Billing: A private equity partner charged clients for personal expenses.

Illegal Short Selling: The investment advisor firm shorted stock in the public market during a restricted period before it illegally bought shares issued in a follow-on offering. The rule promotes offering prices set by supply and demand rather than allow prices to be artificially depressed by short selling.

Insider Trading: An engineer bought stock and options prior to a company’s announcement of the discovery of a new oil source.

Account Takeover: Investor accounts were hijacked and traded without investor authorization for substantial losses after hours.

Each of these examples involves a clear case of investor harm. Due to the Government’s limited resources, it is easier to get the United States to spend resources for investigation and enforcement if the investor harm is clear. By assessing investor harm ourselves in advance of filing a whistleblower tip, we are attempting to screen cases to avoid bringing information to the Government which they will not be interested in pursuing.

If you have evidence of a violation of the federal securities laws, call 1-800-590-4116 to speak to one of our whistleblower attorneys in a free, confidential initial consultation. We can help evaluate your evidence and aid you in determining whether the matter is one that the Government will want to hear about from you.

JUDGE SAYS $1 MILLION FINE TOO LOW FOR COUNTRYWIDE MORTGAGE FRAUD

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Lose

A federal judge has signaled that $1 million is too low of a penalty for those responsible for the Countrywide mortgage fraud debacle.  At a hearing last week in a Manhattan federal court, Judge Jed S. Rakoff, declared that such a penalty would be a “windfall” for Bank of America, Corp., (“BofA”) the entity legally responsible for its now defunct subsidiary, Countrywide Financial Corp. (“Countrywide”).  While he has not yet determined the penalty, Judge Rakoff stated, “[i]t would be a windfall to a perpetrator who made, hypothetically, $100 million, to just penalize them $1 million…[t]hat would have no deterrent effect at all.”

As reported earlier by Young Law Group, in October a jury unanimously found BofA and former Countrywide executive, Rebecca Mairone, liable for civil fraud after a lengthy trial focusing on the companies’ sale of junk mortgages leading up to the mortgage crisis of 2007 and 2008.  Former Countrywide executive turned whistleblower, Edward O’Donnell, initially filed the case in federal court.  The details of the case involve a program, internally deemed “Hustle,” wherein Countrywide eliminated substantive vetting of home loan recipients, but also pushed employees for higher loan volume by paying lucrative bonuses.  Shortly before the economy collapsed, Countrywide sold over 30,000 risky mortgages, worth hundreds of millions of dollars, to Fannie Mae and Freddie Mac.

U.S. Attorney Preet Bharara of the Southern District of New York prosecuted the case using an under-utilized weapon in the fight against fraud, the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”).  Like the False Claims Act, FIRREA has a whistleblower provision, which will likely ensure O’Donnell receives a percentage of the government’s total recovery.  FIRREA makes it a crime to perpetrate fraud against a federally insured financial institution.

FIRREA generally sets the maximum penalty of $1.1 million, but gives the sentencing judge discretion if the defendant has caused losses or made gains in excess of this amount.  The Department of Justice is seeking $848.2 million in fines and penalties, a figure it roughly equates with the financial damages sustained by the Fannie Mae and Freddie Mac.  BofA argues that the losses suffered by Fannie and Freddie were a result of overall economic downturn and not any fraud on Countrywide’s part.  Thus, the financial giant’s lawyers maintain that it should pay no penalty, or at maximum the general statutory cap of $1.1 million.  Judge Rakoff’s statements in last week’s hearing, however, clearly indicate that he does not think the statutory cap binds his judgment and he believes BofA is liable for either gains it made as a result of its fraud, losses maintained by the government, or both.  However, the total amount that Judge Rakoff will ultimately order BofA to pay is unclear at this time.

Young Law Group is a nationwide leader in whistleblower representation and has successfully represented numerous clients in some of the nation’s largest qui tam cases for over a decade.  For a free confidential consultation, please call Eric L. Young, Esquire at (800) 590-4116 or complete the online form here.

Tax Court Says IRS Whistleblowers Get Rewards on Criminal Fines

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Criminal fines and civil forfeitures are collected proceeds under Internal Revenue Code section 7623(b), the mandatory tax whistleblower program, according to a recent decision by the U.S. Tax Court. The opinion paved the way for an award of $17.8 million to a pair of whistleblowers.

In the rules for the IRS whistleblower program, the tax agency took the position that Congress meant to exclude funds received from outside of Title 26 when it used the term “collected proceeds” in the law. This decision overrules those regulations.

The case centered around a $74 million fine consisting of a tax resolution, a criminal fine, a civi forfeiture of fees received for its services, and the relinquishment of claims to money previously forfeited. The parties agreed that an award of 24% of the collected proceeds was warranted.  However, the IRS and the whistleblowers disagreed as to whether a reward was owed for the money collected as part of the criminal fine and civil forfeiture. The IRS took the position that only the fines received pursuant to Title 26 were “collected proceeds” eligible to be the basis for a monetary incentive payment.

The Tax Court refused to “arbitrarily limit[] the meaning of an expansive and general term”, holding that “collected proceeds” is “sweeping in scope” and not limited to Title 26 collections. In doing so, it distinguished its earlier decision that FBAR penalties are not part of the “additional amounts in dispute” in order to reach the law’s $2 million threshold. The Tax Court also dismissed the argument that Congress had otherwise allocated the funds so they were not available for an award.

It is a sweeping victory for current and future tax whistleblowers, who have struggled with a program that Senators Grassley and Wyden criticized for its long backlog and “few and far between” payouts in a 2014 Politico article. We’re very pleased at the outcome and hope it opens the way for more whistleblowers and a better public-private partnership to fight tax fraud and evasion.

If you have questions about the implications of this decision, please call 1-800-590-4116 to speak to one of our IRS whistleblower attorneys.

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GAO Reports on IRS Whistleblower Program

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The U.S. Government Accountability Office has issued a report on the IRS whistleblower program following a year long audit of the program, its operation and the underlying data generated. The 2015 report concludes that the financial incentives of the rewards program have led to billions collected but that delays and communications problems may discourage whistleblowing.

The Office of the Whistleblower at the IRS has awarded over $315 million between FY 2011 and June 30, 2015 to individuals submitting information about tax noncompliance. There were 17 awards paid during that time under the 7623(b) program, which resulted in $261 million in payouts to IRS whistleblowers. This program was put into place following its passage in the Tax Relief and Health Care Act of 2006.

The 483 awards under Section 7623(a), which involve information provided under the discretionary program for claims of $2 million or less as well as those tips provided before the 2006 law went into effect, accounted for $54 million in awards and total collected proceeds of $853 million.

Notable

* In total, 500 whistleblowers have of approximately $1.88 billion over the past four years.

* The IRS found that the WO has made errors in award determinations which resulted in over- and underpayments. The IRS has since begun corrective actions to verify collected proceeds prior to payment.

* Over 95 percent of the claims closed since FY 2013 have not received an award payment. Among the reasons claims are closed early include unclear submissions, a lack of specific information, or the claimant lacked credibility.

* Staff growth in the whistleblower office has not kept pace with workload due in part to Congressional reductions in the budget.

* The 17 paid 7623(b) claims took 4 years to 7.5 years from Form 211 submission to award payment.

* The majority of the 7623(b) awards were at 22 percent of collected proceeds with several at the maximum level of 30 percent.

* Over half of the awards had a lawyer representing the whistleblower. Some IRS whistleblower attorneys the GAO spoke with indicated that they are . One attorney went so far as to indicate that he appeals award determinations in order to learn more about the program and improve future submissions.

* Backlogs were specifically identified in the process at the agency’s initial review of tips, award determinations for 7623(a) claims, and denial letters.

* The annual report for the program in FY 2014 was delayed eight months due to the need for it to be reviewed by the IRS, the Treasury Department, and the Office of Management & Budget (OMB). The Whistleblower Office reportedly had compiled the document by mid-December 2014.

* The gross tax gap for tax year 2006 was estimated at $450 billion. The IRS estimates that it will eventually collect $65 billion.

Methodology

The examination interviewed IRS officials including employees of the Operating Division and the Whistleblower Office. It reviewed the relevant regulations, data from the E-TRAK system used by the IRS Whistleblower Office, claim files for awards under section 7623(b), communication plan and legislative proposals for change. OIG also spoke to whistleblowers and whistleblower attorneys concerning their experiences and recommendations.

The GAO was asked to look at the timeframe and staffing of the claims process, the determination process for awards under section 7623(b), to evaluate the communications process, and examine the policies and procedures for safeguarding whistleblower identities and protect them from retaliation.

IRS Response

The IRS response noted that the office had previously identified many of the drawbacks concerning the program discussed in the report, and is in the process of updating policies and procedures to address them. Following the leadership change at the Office of the Whistleblower this summer, when Lee Martin stepped into the role as Director previously occupied by Stephen Whitlock, the agency has been studying potential improvements to their operations. It also but that it is hampered to address some of the concerns by law – they

Last Report

The GAO’s last report concerning the IRS whistleblower program was published in 2011. The report urged the Whistleblower Office to improve its communications with individuals providing tips and better track data regarding the tips moving through the system.

The recommendations in this report, which are tracked by the GAO, have all been implemented. Most of them were implement between June and August of 2014. However, the IRS did not release an updated Form 211 to collect additional information from whistleblowers until April 2014.

Other Government Requests for Information

The report is not the only examination by the government into the whistleblower programs. Following the release of the SEC’s annual report to Congress concerning its Dodd-Frank whistleblower program, Senators Grassley and Warren sent a letter to SEC Chair Mary Jo White requesting additional information to follow up on the OIG report about the SEC program released in 2013.

The latest GAO Report is available at http://www.gao.gov/assets/680/673440.pdf

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Government Veto of Qui Tam Settlement Stands in Fourth Circuit

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Because we are a smaller firm, we spend a lot of energy upfront evaluating potential whistleblower cases. The importance of this process was emphasized again by a Fourth Circuit decision last month in United States ex rel. Michaels v. Agape Senior Community, Inc. (4th Cir. Feb. 14, 2017)

The case involved an interlocutory appeal of a pair of U.S. District Court decisions in a False Claims Act lawsuit over elder care fraud. The U.S. declined to intervene and the relators are prosecuting the case. Facing the prospect of taking an expensive case to trial, the relators and defendants agreed to a settlement. The U.S. Government, however, disapproved of the settlement and informed the court that it was exercising its veto.

Although the False Claims Act permits whistleblowers and their attorneys to litigate on behalf of the U.S. Government to recover fraud, it contains several provisions to protect the interests of the United States. The Fourth Circuit concluded that 31 U.S.C. § 3730(b)(1) allowed the Government an unreviewable veto of the settlement. It disagreed with the Ninth Circuit, where precedent requires the veto to be reasonable.

The decision was important because the District Court in Michaels signaled that it did not find the Government’s decision reasonable. As the District Court had rejected the use of statistical sampling, the cost to the relator’s counsel of taking the case to trial was estimated at between $16.2 million to $36.5 million in pretrial preparation. The Government, through statistical sampling, estimated that the value of the case was $25 million. It has not taken over the case, though.

This case has obvious implications for the case evaluation process. When we take on a client, we expect that it is going to be a multi-year relationship. It is not a decision to be made lightly. We are putting our time and money behind our clients as we only take whistleblower cases on a contingency fee basis. These are also complex cases where a variety of factors will influence our ability to successfully litigate a case for our clients and the U.S. Government. It takes time upfront to determine whether we are in it to win it.

Earlier this week, we published a response to an opinion piece in the Pennsylvania Record. The editorial opinion rejected a proposed False Claims Act because of concerns about the conduct of greedy whistleblowers and their attorneys.

Our experience in the trenches has been different. We review our cases thoroughly to ensure that our clients are not seeking 15 minutes of fame. We put a lot of thought into whether we are undertaking a case that we believe we have a decent shot of winning. After all, we do not want to get several years down the road and be told by the U.S. Government that we must spend millions to take a case to trial because they do not find the settlement offer reasonable.

We hope that our potential clients and future clients understand.

Unnecessary Drug Testing & Kickbacks Cost Millennium Health $256 Million

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One of the nation’s largest urine drug testing laboratories settled a False Claims Act lawsuit today to resolve allegations that it billed Medicare and Medicaid fraudulently for unnecessary services and referrals influenced by kickbacks. In the settlement, Millennium Health (formerly Millennium Laboratories) agreed to pay $256 million. It appears that the company is going to enter Chapter 11 bankruptcy and shareholders are going to make an initial payment of $50 million toward the settlement.

The company agreed to pay $227 million to resolve allegations under the False Claims Act. The FCA is the government’s leading tool against fighting spending as a result of fraud. It provides for treble damages and has been used in the past few years to recover billions of dollars lost to health care fraud. It rewards whistleblowers with payments of between 15 and 30 percent of the amount recovered by the US Government.

Millennium was accused of misrepresenting the need for expensive testing to doctors by encouraging them to setup custom profiles which in fact became standing orders for additional testing that occurred without regard to individual patient need. Medicare prohibits the billing of services which are not reasonable and medically necessary.

Millenium also offered gifts (test specimen cups) to physicians to boost their testing referrals, according to the U.S. Government. I haven’t looked at the procedural history of the case in the context of the False Claims Act, but the specimen cup issue may have been brought to light by an antitrust lawsuit originally filed by one of its competitors. The Department of Justice weighed in on that case after the start of its investigation to say that the free testing cups were a violation of the Stark Law and Anti-Kickback Statute.

Ten million of the settlement amount covered a separate whistleblower lawsuit brought by a healthcare provider in Florida which reported the company for unnecessary genetic testing performed without regard to patient need.

The San Diego-based company has been under investigation since 2012. The settlement is another example of the Justice Departments ongoing pursuit of diagnostic testing companies. Earlier this year, another laboratory (Health Diagnostics Laboratory) settled allegations that it paid physicians improperly for the referral of blood sample testing. Health Diagnostics claimed that the payments were a reasonable amount for the work performed by the doctor.

An article in the Wall Street Journal in 2014 discussed the explosion of annual Medicare payments for high tech testing of urine for drugs. In 2007, less than $50 million was spent on such tests. In 2013, Medicare spent more than $600 million on the monitoring of patient treatment for pain and substance abuse. With the tremendous explosion of payments in this area, it is no surprise that the U.S. Government is looking into improper payments in this area aggressively.

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