Whistleblower Qui Tam Lawyer Blog
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A recent case in Illinois highlights a common battleground in qui tam whistleblower cases namely, the whistleblower who keeps and relies upon company documents to prove the fraud allegations of his or her complaint.

In Shmushkovich v. Home Bound Healthcare, Inc., 2015 WL 3896947 (N.D. Ill. June 23, 2015), a whistleblower brought a qui tam complaint against his employer, a home health agency.   As part of his job, the whistleblower had retained numerous company computer files on his personal computer at his home.   The whistleblower was still employed at the home health agency at the time he filed the qui tam complaint, and he was still employed their when the complaint became unsealed.

As soon as the employer learned of the qui tam complaint, the employer immediately demanded the return of any company files in the whistleblower’s possession, including computer files.   The whistleblower deleted all files from his computer but made two copies, one delivered to the employer and one delivered to his attorney.

The employer then filed a motion demanding that the attorney return the company’s computer files.  In a well-reasoned opinion that can be found by clicking here, the court denied the employer’s motion.

The court first cited the long line of authority for the proposition that public policy and the False Claims Act encourages whistleblowers to investigate and report fraud against the government, even when that means violating confidentiality agreements or taking company documents that would otherwise be confidential.

The court then addressed a more practical concern.  The whistleblower, in the context of litigating the qui tam case, would be entitled to request documents relevant to the fraud anyway. To the district court, it made little sense to require the whistleblower to return electronic documents, only to then request the exact same electronic documents in discovery from the employer.  As the court explained, “requiring [whistleblower] to return documents that he will inevitably receive in discovery is a formality that has been obviated by the circumstances of this case (i.e. [whistleblower] already has copies of the documents and [employer] knows what documents he has) and will only serve to unnecessarily increase the expense and extend the length of the litigation.”

The district court added two caveats.  First, the whistleblower could only retain documents that were relevant to his claims, and he had to delete the remainder. Second, the court acknowledged that the computer files might contain attorney-client privileged documents. In the event that the whistleblower’s lawyers gained access to these privileged documents, the court might have to hold a hearing in the future to determine whether the employer had been injured and what remedies might be necessary.

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As recently reported by CBS News, federal authorities are currently investigating widespread fraud occurring in the area of compounded pharmaceuticals and compounding pharmacies.

Compounding refers to the process by which medications can be turned into topical creams, ointments and gels.  Many pharmacies specialize in the manufacture of compounded medications, especially compounded pain and scar medications.  These are commonly sold and marketed as migraine creams, pain creams, or scar creams.

The cost of these medications is extremely high and they carry high reimbursement rates from government healthcare programs.  As an example, one month’s worth of compounded pain medication can cost as much as $15,000, or more.

According to the CBS report, federal regulators have noted an extreme spike in government spending on compounded medications through TRICARE, which covers healthcare for the U.S. military, and through Medicare and Medicaid, the traditional healthcare programs for the elderly and the poor.

Typical scams work as follows:

Cold calling beneficiaries:  Fraudsters will obtain a list of military personnel or elderly persons and cold call them to ask if they are in pain or in need of pain medication.  The cold caller will then promise a fantastic and free pain medication offered to them by the government.  The cold caller will request the patient’s TRICARE and Medicare information as well as information about the patient’s doctor. The cold caller will then fax a prescription to the doctor.  Many doctors sign these prescriptions, either because they assume the patient needs it or because they are too busy to check.   If the doctor signs the prescription, the medication is mailed to the patient and billed to the government.

Dishonest doctors:  Thankfully, many doctors refuse to sign dubious prescriptions faxed to their offices.  To overcome this hurdle, fraudsters frequently make use of a bogus or dishonest doctor who will authorize prescriptions without ever seeing the patient.  These doctors are usually paid a kickback for their “services.”

Waiver of co-payments.  Most insurance policies, even policies offered through government healthcare programs, require the patient to make a co-payment.  This can be a hurdle to a fraud scheme, where the key is to convince the patient to keep (and not complaint about) thousands of dollars of medications being shipped to them.   If the patient has to pay anything – even a small co-payment – the patient might refuse to accept the medications.

To overcome this, unscrupulous pharmacies simply waive or fail to collect the co-payment.  This is illegal if done on a routine basis.  More creative fraudsters will even pay the co-payment themselves in order to cover their tracks in the case of an audit.  If the government comes to check, the auditor will see the co-payment was paid – little does the auditor know it was paid by the pharmacy itself.

Paying kickbacks.  Many pharmacies will also pay kickbacks to sales agents, contractors and others who agree to locate patients and funnel them to the pharmacy.  Paying kickbacks is illegal under the federal Anti-Kickback Statute.

Our law office has seen an increase in the number of potential whistleblowers calling with stories of various scams in the world of compounded pain medications.  If you know of fraud being committed in this area, contact one of our attorneys at 877-915-4040 for a free consultation.

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Whistleblowers often face a difficult decision when they suspect fraud at their place of employment.   The whistleblower knows that fraud is being committed, but he or she will never be able to prove it without keeping or retaining documents and records that might be protected by the Health Insurance Portability and Accountability Act, more commonly known as HIPAA.   In broad terms, this law prevents certain businesses and people from disclosing confidential patient data to third parties.

Fortunately, HIPAA contains an exclusion for disclosures made by whistleblowers, provided certain conditions are met.  Specifically, 45 CFR 164.502 (J) (1) provides that “a covered entity is not considered to have violated the requirements of this subpart if a [whistleblower] . . . discloses protected health information, provided that . . .  The [whistleblower] . . . believes in good faith that the covered entity has engaged in conduct that is unlawful.”   This section allows the whistleblower to make such disclosures to the government, regulators, or to “an attorney retained by or on behalf of the [whistleblower] for the purpose of determining the legal options of the [whistleblower].”

A recent case shows how the provision applies.  On July 1, 2015 a federal district court judge in the Eastern District of Arkansas decided a case, Howard ex rel United States v. Arkansas Children’s Hospital, 4:13CV00310JLH.  In this case, a former hospital employee filed a qui tam whistleblower action against a hospital.  Upon her termination, the whistleblower retained certain protected health information which she used to help back up her lawsuit.  She showed these documents to her attorneys for the purpose of seeking legal advice.

Upon learning that the whistleblower retained this HIPAA information, the hospital moved for summary judgment, arguing that the employee did not qualify as a “whistleblower’ within the meaning of the HIPAA regulations.

The District Court rejected this argument, finding that: (1) the hospital was a covered entity under HIPAA, (2) the whistleblower was a member of the hospital’s workforce within the meaning of HIPAA; (3) the whistleblower believed in good faith that the hospital had been engaged in unlawful conduct, and (4) that the whistleblower was therefore allowed to disclose the HIPAA information to her attorneys for purposes of seeking a legal opinion.

In short, HIPAA, while serving important goals of protecting patient privacy, does not stand in the way of honest employees who want to blow the whistle on healthcare fraud.

West Palm Beach FL False Claims Law

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According to the Department of Justice, LB&B Associates, Inc. (“LB&B”) has agreed to settle a qui tam lawsuit alleging it violated the False Claims Act by claiming it qualified as a Small Disadvantaged Business when it did not. LB&B is a North Carolina corporation that was formed in 1992 and is headquartered in Columbia, Maryland.

According to its website, LB&B provides a variety of contractor services to federal and state government agencies, the military, NATO, hospitals, churches, research centers, educational facilities, and other commercial business entities. Its business divisions include facilities management, operations and maintenance services; logistical support; systems and technology support; base operations support; and commercial support.

The U.S. Small Business Administration, created by Congress in 1953, runs the 8(a) Business Development Program (“8(a) Program”). The 8(a) Program assists small and disadvantaged businesses with competing in the marketplace, by giving them access to government contracts that are set aside specifically for small and disadvantaged businesses.

To be eligible to participate in the 8(a) Program business, the business must meet specific criteria, including the following:

  • It must be majority owned, controlled, and managed by socially and economically disadvantaged individual(s);
  • The control person(s) must be American citizen(s);
  • It must be a small business able to demonstrate the potential for success; and
  • The principals of the business must demonstrate good character.

For purposes of the 8(a) Program, minority individuals are presumed to be socially disadvantaged.  The socially disadvantaged control person(s) must provide documentation to the Small Business Administration demonstrating that he or she is also economically disadvantaged.  They must provide a narrative statement of economic disadvantage and personal financial information such as income tax returns.

According to the government, two former employees of LB&B filed a whistleblower lawsuit under the qui tam provisions of the False Claims Act alleging that LB&B falsely certified that Lily Brandon, a socially and economically disadvantaged person, controlled the operations of LB&B when she did not.  The whistleblowers further alleged that LB&B was improperly awarded government set aside contracts as a result of its false certification.

LB&B has agreed to pay $7.8 million to settle the allegations.  The whistleblowers will share in $1.5 million of the settlement proceeds as their reward under the qui tam provisions of the False Claims Act.


West Palm Beach FL False Claims Law

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Each year the IRS publishes a list of the “Dirty Dozen” tax scams.   The list is intended to warn taxpayers against common and trending tax scams.  The complete list for 2015 can be found by clicking here.

The 2015 list includes the improper use of captive insurance companies to shelter income from the IRS.

Captive insurance companies, when used lawfully, can be a means of legitimate self-insurance.  Basically, a parent company forms a wholly-owned subsidiary, which operates as a “captive insurance company.”  The captive insurance company can be incorporated domestically, but is more often incorporated in an offshore venue, such as the Cayman Islands, the Bahamas, or the British Virgin Islands.   The parent company pays insurance premiums to its captive subsidiary, which then provides insurance to the parent company, either through the reinsurance market or on its own.

The tax benefits can be obvious.  All premiums paid to the captive company can be deducted as expenses by the parent.  Since these expenses are being paid to a subsidiary, however, the joint owners of both parent and subsidiary benefit from the transaction.

In the Dirty Dozen list, the IRS identified two red flags to signal when captive insurance companies are being used improperly.  First, the IRS identified situations where the risk being insured is an esoteric or implausible risk.  In other words, the parent company is paying a large premium to its own captive subsidiary to insure against a risk that is never likely to happen.   The insurance policy is being used as a ruse for sheltering income from taxes.

Next, the IRS identified situations where the total amount of premiums paid to the captive insurance company equals or comes close to the amount of deductions that a given business or  entity needs to reduce its income for the tax year.   The IRS might view this as more than a mere coincidence.  Instead, this might be a sign that the captive insurance company was created, not as a legitimate means to provide insurance for the parent, but as a means to reduce taxable income for the parent.

If an employee knows about the use of a bogus captive insurance company, he or she may be entitled to a reward by reporting this information to the IRS through the IRS whistleblower program.

 Palm Beach County Law Firm

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According to the Department of Justice, a for-profit education company based in Baltimore, Maryland, Education Affiliates (“EA”), has agreed to settle five qui tam cases alleging the company submitted fraudulent claims to the U.S. Department of Education in violation of the False Claims Act.  According to EA’s website, it offers post-secondary education programs at 51 campuses throughout the United States.  EA operates under several trade names, including All State Career, Fortis College, Tri-State Business Institute, Technical Career Institute, Fortis Institute, St. Paul’s School of Nursing, Capps College, Denver School of Nursing, and Driveco CDL Learning Center.  The campuses are located in Pennsylvania, Alabama, Florida, Maryland, Texas, and Ohio.

According to the government, five whistleblowers initiated lawsuits against EA under the qui tam provisions of the False Claims Act between 2010 and 2014 in United States District Courts in Maryland, Texas, Alabama and Ohio. The whistleblowers alleged that the for-profit operator of trade and professional schools altered admissions tests scores to admit unqualified students, created fraudulent high school diplomas or referred prospective students to “diploma mills” in order to procure invalid online high school diplomas, and falsified federal student loan applications.  According to the whistleblowers, each submission of a claim for federal student aid for a student that was admitted through improper and/or fraudulent means was a violation of the federal False Claims Act.

In addition, the whistleblowers alleged that employees who were involved with enrolling students for campuses in Birmingham, Houston, and Cincinnati received improper incentive compensation and made material misrepresentations to prospective students about graduation and job placement rates.

EA has agreed to pay $13 million to the federal government to settle the allegations that it violated the False Claims Act.  Of that amount, $1.9 million relates to federal financial aid awarded to students at the Fortis-Miami campus based on invalid high school diplomas issued by a diploma mill.  The whistleblowers will share in $1.8 million of the settlement proceeds as their reward under the qui tam provisions of the False Claims Act.

West Palm Beach FL False Claims Law

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On June 23, 2015, the United States Court of Appeals for the District of Columbia Circuit issued a helpful decision for qui tam whistleblowers in U.S. ex rel Heath v. AT&T, Inc., Case No. 14– 7094, 2015 WL 3852180 (D.C. Cir. 2015).

The issue concerns the level of factual detail that a whistleblower must allege in his or her complaint in order to survive a motion to dismiss under Federal Rule of Civil Procedure 9(b).  Under that rule, plaintiffs who allege fraud must do so “with particularity.”  In the context of qui tam whistleblower claims, many courts have applied an overly strict construction of Rule 9(b) by requiring that whistleblowers know the precise details of the exact “false claims” that were submitted to and paid by the government.

This level of detail can be impossible for many whistleblowers to allege.  As an example, an employee of a fraudulent healthcare facility may know precise details as to when and how his or her employer is paying kickbacks to physicians in order to generate referrals of patients.   These types of kickbacks make all claims submitted to Medicare “false” within the meaning of the False Claims Act.   The whistleblower may be able to allege the details of the kickback scheme with great specificity.   However, because he or she does not work in the billing department, he or she probably has little, if any, of the precise details regarding the exact “claims” submitted to Medicare or Medicaid.   Under those circumstances, many courts have taken the view that the whistleblower’s claim lacks “particularity.”

In the Heath case, the D.C. Circuit joined the growing trend of cases moving away from this overly strict application of Rule 9(b).   Heath involved a conspiracy by AT&T to cause inflated bills to be submitted to the federal government.  The whistleblower had a great deal of knowledge about the conspiracy, but not the dates and amounts of the bills themselves.   AT&T argued the lawsuit should be dismissed because the whistleblower could not point to any specific bills that had been paid by the government.

In a helpful decision, the D.C. Circuit rejected this argument:

“We accordingly join our sister circuits in holding that the precise details of individual claims are not, as a categorical rule, an indispensable requirement of a viable False Claims Act complaint, especially not when the relator alleges that the defendant knowingly caused a third party to submit a false claim as part of a federal regulatory program.”   See U.S. ex rel Heath v. AT&T, Inc., 2015 WL 3852180, * 12 (D.C. Cir. 2015).

This case should prove helpful to whistleblowers who have valid information about schemes to defraud the government but do not have the dates, times, and amount of the actual bills sent to the government.

West Palm Beach County Law Firm

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According to the Justice Department, the Medicare Fraud Strike Force conducted a nationwide operation in 17 cities this week.  The sweep resulted in criminal charges against 243 individuals for their alleged participation in healthcare fraud schemes involving over $700 million in false billings to government healthcare programs.  Forty-six (46) of the individuals were doctors, nurses, or other licensed medical professionals. According to the U.S. Attorney for the Southern District of Florida, seventy-three (73) of the individuals are residents of South Florida.

According to the U.S. Attorney General, those charged are alleged to have participated in various criminal activities including violation of the anti-kickback statute, money laundering, identity theft, and conspiracy to commit healthcare fraud.  The charges relate to claims submitted to government healthcare programs, such as Medicaid and Medicare for treatments that were either medically unnecessary or never provided.  In some cases, patient recruiters or others were allegedly paid illegal kickbacks in return for providing beneficiary information to medical providers so the providers could submit fraudulent bills to government healthcare programs.

U.S. Attorney Wifredo Ferrer, announced that the majority of the 73 Florida residents charged live in Miami-Dade County.  The Florida residents charged include:

  • Owners and operators of several pharmacies who are charged with paying Medicare beneficiaries for their personal identification numbers which in turn were used to submit false and fraudulent Medicare Part D claims for prescriptions.
  • Owners and operators of a pharmacy who are charged with submitting false claims for drugs that were not medically necessary and were not provided. In addition, they allegedly submitted false drug wholesaler invoices to conceal that they had not purchased sufficient quantities of prescriptions drugs to have filled all of the prescriptions they had submitted to the government for payment.
  • A doctor who is charged with submitting false claims to Medicare that home health care services were medically necessary and provided when, in fact, the services were neither necessary, nor provided.
  • An owner and a director of nursing for a home health agency who are charged with creating false and fraudulent patient assessment forms stating that Medicare and Medicaid beneficiaries were qualified to receive home health care when they were not.
  • Individuals who allegedly submitted fraudulent claims for physical therapy services that were not provided.
  • An individual who is charged with submitting claims on behalf of his home health agency employer, but then having the payments sent to his home, which he then deposited in bank accounts that he alone controlled.
  • An individual who is charged with laundering money that was used to conceal the payment of illegal kickbacks.
  • Owners and operators of a behavioral health facility who are charged with paying patient recruiters and assisted living facility owners in exchange for patient referrals.

The Florida residents that have been charged were allegedly involved in defrauding Medicare and Medicaid out of approximately $263 million.


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According to the Department of Justice, Children’s Hospital, Children’s National Medical Center, Inc. and its affiliated entities (collectively “CNMC”) have agreed to settle a pending qui tam lawsuit in which the federal government intervened.  The entities will pay $12.9 million to settle allegations that they violated the False Claims Act.

According to its website, CNMC is the sole exclusive provider of pediatric care in the Washington D.C. metropolitan area, and the only freestanding children’s hospital between Philadelphia, Pittsburgh, Norfolk, and Atlanta.  Reportedly, CNMC is the largest non-government provider of primary care in the District of Columbia, seeing over 35,000 children annually in all of its 30 locations combined. According to CNMC, it performed more than 17,860 surgical procedures, 123,332 radiological examinations, and more than 1 million laboratory tests in calendar year 2013.

In 2014, a former CNMC employee, James Roark Sr., filed a whistleblower complaint under the qui tam provisions of the False Claims Act against CNMC.  In his complaint, the whistleblower alleged that CNMC submitted false claims to the Medicaid programs of the Commonwealth of Virginia and the District of Columbia, as well as to the Department of Health and Human Services (“DHHS”).  Medicaid is a joint federal and state program that provides free or low-cost health coverage to people with limited income and resources.

Specifically, the whistleblower, and later the federal government, alleged that CNMC knowingly misstated information on cost reports and applications which was then used by DHHS and Medicaid to calculate reimbursement rates.  In addition, the government alleged that CNMC intentionally misrepresented its available bed count on its application under the Children’s Hospitals Graduate Medical Education Payment Program (“CHGME”).  The CHGME is run by the DHHS’ Health Resources and Services Administration and provides federal funds to freestanding children’s hospitals to help them maintain graduate medical education programs.   As a result of the false claims allegedly submitted by CNMC, CNMC received over-payments from the Virginia and District of Columbia Medicaid programs.

CNMC has agreed to pay $12.9 million to settle the allegations that it violated the False Claims Act. The whistleblower will receive approximately $1.89 million as his reward under the qui tam provisions of the False Claims Act.

West Palm Beach County Law Firm

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According to the Justice Department, Orbit Medical, Inc. and Rehab Medical, Inc. have agreed to settle allegations that Orbit violated the False Claims Act.  Orbit is a durable medical equipment supplier based in Salt Lake City, Utah. Rehab, a partial successor of Orbit, is headquartered in Indianapolis, Indiana.

According to the government, in 2010, two former employees of Orbit, Dustin Clyde and Tyler Jackson, filed a whistleblower complaint under the qui tam provisions of the False Claims Act.  The whistleblowers alleged that Orbit submitted false claims to government healthcare programs for power wheelchairs and accessories.

Government healthcare programs such as Medicare, the Federal Employees Health Benefits plan, and the Defense Health Agency will only pay for power wheelchairs for beneficiaries under limited circumstances, i.e. the individual cannot perform activities of daily living in their home wither other less costly mobile assistance equipment like a cane, walker or power scooter.  In addition, before the cost of a power wheelchair will be reimbursed by the government, the patient must be examined by a physician, receive a written prescription dated within 45 days of the examination, and provide documentation that evidences the patient’s medical need for the power wheelchair.  The government also requires very specific information on the prescription including the diagnoses that wheelchair is expected to accommodate, how long the patient will need the power wheelchair, and the physician’s signature.

In their qui tam complaint, the whistleblowers alleged that Orbit’s employees knowingly altered the paperwork for government healthcare beneficiaries in order to have the power wheelchair claims paid for by the government.  It was specifically alleged that Orbit employees were instructed to: 1) falsify prescriptions and supporting documentation to establish medical necessity, 2) forge physician’s signatures, and 3) alter documents to make it appear as though they came from a physician’s office.

The Justice Department says that Orbit and Rehab have agreed to settle the allegations for $7.5 million.  The whistleblowers will share in $1.5 million of the settlement proceeds as their reward under the qui tam provisions of the False Claims Act.  The government’s claims against Orbit’s former vice president and sales manager Jake Kilgore remain pending.  Kilgore was previously indicted by a federal grand jury in Utah for health care and wire fraud in 2013.