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Any fraud on a federal government agency could potentially be a violation of the federal False Claims Act.  Not every government fraud involves millions of dollars.  Take, for example, a recent settlement announced by the Department of Justice’s Office of the Inspector General.

According to the DOJ’s press release, Douglas daCosta of Livermore California, a former federal law enforcement agent in the San Francisco field office of the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF), has agreed to settle allegations that he submitted false claims to the federal government for paid sick leave when he wasn’t sick. Wait. What? An employee got in trouble with the federal government for playing hooky from work?  Yes.

The DOJ alleged that between January 2009 and June 2009, daCosta submitted claims to the ATF for over 80 sick days.  daCosta reportedly told his supervisors that he was undergoing treatments for cancer when, in fact, he did not have cancer and he was not undergoing any medical treatment.  The government contends that daCosta even presented a forged letter from a physician to support his claims.  Allegedly, daCosta was working in the private sector at the same time he was supposedly undergoing cancer treatment and while he was submitting claims for paid sick leave to the government.

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I.R.S. Whistleblower Awards Expanded by U.S Tax Court

The statute governing whistleblower claims, I.R.C. § 7623, grants awards to private citizens who provide information to the IRS that leads to the collection of at least $2 million in taxes, penalties, interest, and “additional amounts.”  The whistleblower can get an award of “at least 15 percent but not more than 30 percent of the collected proceeds.”

This week, the United States Tax Court issued an opinion that expands the definition of “collected proceeds” for purposes of an IRS whistleblower claim.  The IRS has generally taken the position that so-called “tax restitution,” or repayment of back taxes and interest, qualified as “collected proceeds,” but any criminal or civil fines or forfeitures did not.  For instance, the IRS’s Internal Revenue Manual explains that criminal fines cannot be used for a whistleblower award, because the entirety of the fine must be deposited into the Victims of Crime trust fund.  Likewise, a civil forfeiture must be placed in its entirety into a Treasury Department trust fund.

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If you are not part of a low-income family with small children, you may not have heard of the Child Care and Development Fund (CCDF).  Similar to the Medicaid program, CCDF is a joint program between the federal government and the states that provides child care subsidies to eligible low-income families so the parent(s) or legal guardian can work or attend school.

In 2015, under the CCDF program, the federal government paid $5.4 billion and the states contributed a combined $2.2 billion to provide child care to 1.5 million children per month.  Of those monies, Florida received nearly $274 million in federal funding and provided child care subsidies to 213,000 eligible children.

As with any government program, there is a potential for fraud.  A report recently issued by the Department of Health and Human Services, Office of Inspector General estimates that in 2015, $311 million in false claims were submitted to the CCDF program.   The potential for fraud includes false claims made by both clients receiving the subsidies and child care providers.

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The False Claims Act contains a provision commonly known as the public disclosure bar.  This provision, in certain circumstances, prevents whistleblowers from bringing qui tam cases if those cases are based upon facts or fraudulent schemes that have already been disclosed to the public in certain limited ways.  The underlying goal of the rule is to prevent a would-be whistleblower from claiming “credit” for information that the Government already knows or already had the opportunity to know.  A person cannot learn about a fraud from watching the local TV news, for example, and then claim a qui tam reward for reporting that same fraud to the Government.

Under the public disclosure rule, a whistleblower’s lawsuit might be barred if substantially the same allegations or transactions were publicly disclosed in the following places:  (1) in federal civil, criminal or administrative hearings where the Government was a party, (2) in Congressional or federal reports, hearings, audits or investigations, or (3) in the news media.

This rule has a number of exceptions.  Most importantly, the public disclosure bar does not apply if the whistleblower is an “original source” of the information.  An original source means a person who has voluntarily disclosed his or her information to the Government before the public disclosure took place, or a person who has knowledge that is independent of and materially adds to the publicly disclosed information.  An original source must voluntarily provide his or her information to the Government before filing an action under the False Claims Act.  This is spelled out in 31 U.S.C. 3730(e).

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Increased Civil Penalties Under the False Claims Act – West Palm Beach Business Litigation Attorneys Explain

On June 30, the Department of Justice announced that it is adjusting the civil monetary penalties imposed under the False Claims Act, effective August 1, 2016.  This follows a similar increase announced by the Railroad Retirement Board back in May of this year.

Currently, each false claim submitted for payment to the federal government subjects a defendant to a minimum monetary penalty of $5,500 to $11,000 per claim, in addition to an amount equal to three times the actual damages suffered by the government as a result of the claim.  As a result of this inflationary adjustment, the penalty range increases from a minimum of $10,781 to a maximum of $21,563 per claim – nearly double the prior range!

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Ralph Nader is often credited with coining the modern term “whistleblower” to refer to an employee who reports illegal, unethical or wrongful conduct at his or her place of employment.   At our firm, we have had the privilege to represent many courageous whistleblowers who have had the integrity to stand up and report fraud and abuse against government programs when no one else at their workplaces would do so.  Here are a few of many reasons our country needs more such whistleblowers:

 1.     Fraud is Everywhere.

Politicians often differ on the amount of money that the government should spend.  But regardless of whether you believe in “big government” or “small government,” we all agree the government should not spend money on fraudulent goods and services.  The government loses billions each year to fraud and abuse against federal spending programs such as Medicare, Medicaid and defense contracting.  This hurts everyone (except for the fraudsters of course).

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Improper Off-Label Usage of Prescription Drugs

Broadly speaking, “off-label” drug use occurs when a doctor prescribes a medication for a condition or ailment that is not specifically approved by the FDA.  When the FDA approves a drug, the manufacturer is required to submit studies showing that a drug works for a specific condition and that it is safe.  Sometimes, however, a drug is shown to have beneficial effects on a condition, but the FDA will not approve the drug for that specific use.  For instance, I take a drug for migraine headaches that has only officially been approved for treatment of clinical depression.  This is considered “off-label” use.

No law prevents a physician from writing a prescription for an off-label use, and private insurance companies (my own included) frequently pay for drugs even when used for an “off-label” purpose.  Nevertheless, “off-label” drug use presents the potential for fraud.  Drug companies are barred by the FDA from marketing a drug for off-label use – for obvious safety reasons.

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False Claims Act litigation: Implied False Certifications and Supreme Court

As we wrote back in April, the Supreme Court considered a case this term on a grey area in False Claims Act litigation – “implied certifications.”  A typical false claim would be “factually false” – in other words, the fraudster submits a claim to the government that is actually false.  For instance, if a government contractor submits an invoice to the government for 10 tons of potatoes but only supplies 5 tons, the invoice is “factually false.”

An “implied certification” involves a claim for payment where a defendant did not expressly certify a fact, but the act of submitting the claim “implies” that certain facts are true.  For instance, submitting a claim for payment to Medicare has been deemed an implied certification of compliance with the Anti-Kickback Statute and the Stark Law.  Thus, a claim that is submitted to Medicare for services that resulted from the payment of a kickback is “impliedly false.”  Likewise, if a contractor fulfills a contract to provide guns to the military, but the guns do not shoot, that could be an “impliedly false” claim – the guns were in fact provided, but the contractor did not comply with the terms of the contract that require the guns to work.

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Report Kickbacks and 1099 Sales Reps

Many healthcare companies engage independent sales representatives or marketers to sell their goods and services.   These include pharmaceutical companies, diagnostic laboratories, home health agencies, imaging centers and many others.

Unfortunately, many of these companies violate the Anti-Kickback Statute (AKS) and the False Claims Act through the manner in which they pay these sales people.  In general, sales people can be engaged and paid in one of two ways:  (1) as W-2 employees, or (2) as 1099 independent contractors.  W-2 employees require greater supervision on the part of the employer, whereas independent contractors do not.  Also, employers must withhold taxes and pay payroll taxes for W-2 employees, which is not the case for 1099 independent contractors.

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In the world of healthcare, federal law makes it illegal to offer or receive a kickback in exchange for referring or arranging for the furnishing of any item or service that will be covered by a federal healthcare program.   The Anti-kickback Statute can be found at 42 U.S.C. 1320a–7B.

But what is a kickback?  The statute makes it illegal to “solicit or receive any remuneration (including any kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in-kind.”  This means a kickback can be any type of remuneration, benefit or compensation, whether direct or indirect, hidden or secret.

The anti-kickback statute has two overarching purposes.