2017 False Claims Act Year in Review: Government Recovers $3.7 Billion

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Settlements and verdicts in fraud claims brought under the False Claims Act (FCA) amounted to a $3.7 billion payout to the Department of Justice in 2017. Since the FCA was amended in 1986 to enhance the role of whistleblowers and alleviate obstacles to initiating actions against alleged wrongdoers, more than $56 billion has been recovered from those who have defrauded the government.

The FCA is the central tool used to hold entities and individuals accountable for illegally obtaining funds from the federal government. Under the FCA, fraud can give rise to liability when an entity or individual unlawfully receives payment from the federal government or evades payment obligations to the government. The majority of claims are related to healthcare, military or other government benefits programs. The qui tam provision of the FCA authorizes “whistleblowers,” or individuals who are not affiliated with the government, to file lawsuits arising from fraudulent activity and be paid an award for reporting the fraud. In general, whistleblowers can expect to receive between 15 and 30 percent of the government’s total recovery in exchange for their efforts in pursuing these cases.

Claims involving health care fraud dominated settlements and verdicts in 2017. The $3.7 billion recovered by the federal government under the FCA included $2.4 billion related to health care industry claims against pharmaceutical companies, hospitals, pharmacies, laboratories, and physicians. The most significant recoveries were attributed to the drug and medical device industry. These payouts help preserve federally sponsored programs such as Medicare and Medicaid by replenishing lost funds. Moreover, the assistance of whistleblowers helps the government aggressively target wrongdoers with the goal of deterring corruption in critical industries, such as healthcare. Some of the largest recoveries include the following:
 

  • Shire Pharmaceuticals LLC paid over $350 million to resolve kickback claims that alleged that Shire and one its acquired companies, Advanced BioHealing (ABH), persuaded doctors and clinics to use its skin substitute product by offering them various perks including meals, drinks, entertainment, travel, medical equipment and supplies, compensation for alleged speaking commitments, and other monetary gifts and reimbursements. Whistleblowers also initiated claims against Shire and ABH for engaging in unlawful activity related to the sale of its skin substitute product. The pharmaceutical fraud perpetuated by Shire and ABH included promoting their product for unapproved uses, making misleading statements intended to raise the price of the product, and engaging in illicit coding and verification procedures.
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  • Mylan Inc. was ordered to pay $465 million to the federal government and state Medicaid programs for not fully disbursing rebates due under the Medicaid Drug Rebate Program. The claim alleged that the company misclassified its brand name drug, EpiPen, as a generic pharmaceutical in order to underpay rebates, thereby skirting the requirement to issue higher rebates to Medicaid. Mylan’s misclassification allowed the company to pay a fixed 13 percent in rebates to Medicaid, while simultaneously inflating the price of EpiPen by nearly 400 percent in a 6-year period.
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  • In the largest settlement to date with a nursing facility chain, Life Care Centers of America Inc. and its owner agreed to pay $145 million in settlement costs related to accusations that it made fraudulent claims for rehabilitation services for patients that were deemed unreasonable and unnecessary. The nursing facility engaged in a systematic plan to designate Medicare beneficiaries as requiring the maximum level of rehabilitation services regardless of the actual needs of the patients in order to recover the highest possible reimbursement amounts from Medicare.

 
Fraudulent activity against the government was not limited to the healthcare industry. Whistleblowers were also instrumental in securing settlements and verdicts for fraud in housing and mortgage programs and procurement cases. In addition, the government continued to pursue individuals who are liable for fraud and other illegal activity under the FCA. In doing so, the Justice Department sent a strong message that individual wrongdoers cannot hide behind their corporate facades to avoid liability.
 

  • Allied Home Mortgage Capital Corporation and Allied Home Mortgage Corporation were ordered to pay the federal government over $296 million for violations of the FCA and the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA). Allied’s President and Chief Executive Officer were also fined $25 million, illustrating the Justice Department’s commitment to imposing personal liability on those who violate the FCA. The fraudulent activity involved Allied’s falsified claim that many risky loans qualified for Federal Housing Administration (FHA) insurance. Allied then filed insurance claims with FHA upon default of those loans. Many of the loans originated from over one hundred bogus offices that were established to avoid scrutiny by the FHA.
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  • Procurement fraud, or fraud associated with purchasing goods, services or contracting for building projects, was also redressed by the federal government in 2017. Several corporations paid $125 million to settle claims that they failed to adhere to nuclear quality standards. Bechtel National Inc., Bechtel Corp., URS Corp., and URS Energy and Construction Inc. were accused of charging the Department of Energy for faulty nuclear materials, services and testing procedures. The government also alleged that they misused federal funds for the purpose of lobbying Congress and other officials. In another claim, Energy & Process Corporation paid $4.6 million in response to charges that it conducted inadequate quality control procedures and provided defective construction materials to the Department of Energy under a contract to build a nuclear waste treatment facility.

 
The recoveries made pursuant to whistleblower lawsuits represented the vast majority of total recovery amounts in 2017-$3.4 billion (of the total $3.7 billion) was related to actions filed under the qui tam provisions of the FCA. This resulted in individuals who acted as whistleblowers collecting $392 million after submitting qui tam complaints to the federal government. The involvement of ordinary citizens in helping to prosecute fraud cases has increased year after year. Over 650 qui tam lawsuits were filed in 2017, which represents an average of more than 12 new cases each week. The Justice Department emphasized the valuable role of whistleblowers in exposing illegal activity given that “those who defraud the government often hide their misconduct from public view.”

If you have knowledge and proof that a company or individual is defrauding a government program, including the FHA Mortgage Insurance Programs, call us today for a free consultation and case review with an experienced whistleblower attorney. To review your eligibility, contact the whistleblower attorneys at Levy Konigsberg, LLP for a free confidential consultation at 1-212-605-6200 or toll free at 1-800-988-8005.

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