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Weekly UpdatesACTING AS THE EYES AND EARS r the federal government could rove to be a financial windfall for those who take advantage of the federal False Claims Act.
The act, whose history dates to the Civil War, allows private citizens or companies to file lawsuits on behalf of the federal government against those believed to have defrauded the government. As a reward for bringing the action, these private citizens, or whistleblowers, share in the settlements or court verdicts, which can reach hundreds of millions of dollars.
Congress strengthened the act just last month in response to the $787 billion in economic stimulus money coming to the states. Now, a number of lawyers, particularly defense attorneys, fear crowds of people will rush to the courthouse in the hope of getting a piece of any settlement pie.
"The new amendments will adversely affect everyone--all government contractors and subcontractors, all health care providers ... and every other person, company and entity that pays money to the government or receives federal funds by making it far easier to conduct FCA investigations and to win FCA recoveries," said John Boese, of counsel in the Washington, D.C., law office of Fried Frank Harris Shriver & Jacobson LLP, in a law firm newsletter.
"Those who deal in any way with the federal government are entering a whole new world in which FCA liability is much broader and easier to prove."
In Arkansas, only a handful of FCA cases have been filed in recent years. However, Jane Duke, U.S. attorney for the Eastern District of Arkansas, said she expected the number of FCA cases to increase.
"There's a big incentive there for people to file these cases and for attorneys to represent the people that are filing them," she said. "It wouldn't surprise me at all if we don't start seeing more of them, especially now that we have some local firms that are handling them."
One of those firms is Mitchell Blackstock Barnes Wagoner Ivers & Sneddon PLLC of Little Rock, which is handling a whistleblower case for Arkansas Hospice Inc. of Little Rock against Hospice Home Care Inc. of Little Rock. The government unsealed the case last month.
The largest settlement of a False Claims Act occurred on Jan. 15 when Eli Lilly & Co. agreed to pay $1.415 billion for promoting its drug Zyprexa for uses not approved by the federal Food & Drug Administration. The company was ordered to pay $515 million in a criminal fine and $800 million to resolve civil settlements with the federal government and the states that originally brought the case in four separate whistleblower lawsuits.
In 2008 in Arkansas, a whistleblower received a settlement of $350,000 from former neurosurgeon Patrick Chan of Searcy, who received kickbacks from a medical supply sales representative to use her company's products in Medicare and Medicaid patients. Chan pleaded guilty to a criminal charge tied to the case and was sentenced to three years of probation. The settlement of the whistleblower lawsuit also called for Chan to pay the U.S. government $1.05 million and the state of Arkansas $101,000.
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The Mitchell Blackstock firm handled that case as well.
'Risky Business'
Patrick Burns, a spokesman for the nonprofit Taxpayers Against Fraud in Washington, D.C., said he didn't think the amendments to the FCA would result in more lawsuits. He cited the difficulty of persuading the government to intervene in the suits. In nearly all of the cases that have resulted in judgments, the government has helped try the case with the whistleblower's attorneys.
Burns said finding a law firm willing to take a whistleblower case was difficult because the law firm is "picking up the tab along the way."
The evidence then has to be presented to government officials, who then must agree that fraud is occurring before they'll join the case, Burns said.
"It's risky business for the lawyers," he said. "It's risky business for the whistleblowers, because there will be losses."
Filing an FCA lawsuit for a whistleblower is "kind of specialized," said Emily Sneddon, a partner in Mitchell Blackstock. "Clients came to us or were referred to us for these particular cases."
Preparing an FCA case takes countless hours, said Dan Stripling, assistant U.S. attorney for the Eastern District of Arkansas. "It's not something that's done quickly," he said.
The case involving the allegations against Hospice Home Care was unsealed on May 20, more than five years after the suit was filed in U.S. District Court in Little Rock, illustrating just how long an FCA case can take. (See The Hospice Case)
Risks and Rewards
Whistleblowers who move forward with a lawsuit usually face negative consequences.
Although retaliation is prohibited, whistleblowers often lose their jobs for filing a lawsuit against their company, said Burns, the spokesman for Taxpayers Against Fraud.
In addition, such cases can drag out from two to 15 years, he said.
"At the end of the day, the case will be settled for less than you thought it was worth," Burns said.
About half of the cases are settled for $2 million or less. Only four or five cases are settled for more than $100 million. However, the government does share between 15 and 25 percent of the proceeds with the whistleblower. The percentage is partly based on how much information the he can receive up to 30 percent of the recovered funds.
Sneddon said in a news release that if the HHC case settles, no one on the board or the staff at Arkansas Hospice would benefit. The money "will be used to enhance hospice care in Arkansas," she said.
Michael Aureli, Arkansas Hospice president and CEO, said he hadn't faced any negative consequences as a result of bringing the lawsuit. But he thinks all hospice programs in Arkansas will be hurt because of the allegations.
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"That gave us a lot of pause" before the company decided to move forward with the case, he said. "But it was to the point that our own nurses were seeing what was going on. [So] if we don't file something, it's like we're hiding something ourselves."
The alleged fraud had stopped years ago and was an anomaly, Aureli said.
Beefing Up the Act
In February, Sens. Patrick Leahy, D-Vt., and Chuck Grassley, R-Iowa, introduced legislation to give the federal government more ways to investigate and prosecute financial fraud.
The Fraud Enforcement & Recovery Act revised the FCA "to ensure that the government can recover taxpayer dollars lost to fraud and abuse," according to a news release Leahy released in February.
President Barack Obama signed the FERA into law on May 20.
Boese, the attorney with Fried Frank Harris Shriver & Jacobson, said in an interview with Arkansas Business that the legislation would result in more FCA lawsuits.
"The more federal money that is going out, the more False Claims Act cases you end up with," he said.
Peter Hurt II, a partner with the law firm Akin Gump Strauss Hauer & Feld of Washington, D.C., said the changes to the FCA law had "a great deal of very unclear language. It's now going to take years of litigation before companies that do business with the government or take Medicare or Medicaid dollars have an understanding of exactly what the new law means."
Hutt said language in the act referring to overpayment by the government could cause headaches.
"There are many hospitals, government contractors and others who receive overpayments, through no fault of their own," he said. Now "because the statute's unclear, they might face liability."
By Mark Friedman
mfriedman@abpg.com
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