Whistleblower Qui Tam Law Blog

Recently, McKesson Corporation agreed to pay the United States $190 million to resolve claims that it violated the False Claims Act by falsely reporting inflated Average Wholesale Prices ("AWPs") for a large number of prescription drugs, causing government to set higher reimbursement rates for those drugs. The settlement was the result of a lawsuit filed by a whistleblower under the qui tam provisions of the False Claims Act.

Fraudulent AWP schemes are not uncommon. Reimbursement rates for prescription drugs purchased by Medicaid beneficiaries generally are set using certain bench marks, such as the AWP. The AWP is the average price at which drugs are purchased at the wholesale level. In general, network pharmacies purchase prescription drugs from manufacturers or wholesalers, such as McKesson. When a Medicaid beneficiary purchases a covered drug from a network pharmacy, the pharmacy submits a claim for reimbursement to the state Medicaid agency. Although each state establishes its reimbursement formula, reimbursement generally is based on the AWP minus a certain percentage. The seller - usually the manufacturer or wholesaler - pays a rebate to Medicaid each quarter. Reporting inflated AWP data is a common fraud, as it increases payments to manufacturers and wholesalers that sell pharmaceuticals.

Here, the government alleged that McKesson, a large drug wholesaler, reported the inflated pricing data for a wide variety of brand name prescription drugs to First DataBank, a company that publishes drug prices used by most state Medicaid programs to set payment rates for pharmaceuticals, and other publishers of drug prices.

The Medicaid program is funded jointly by the Federal and state governments. The settlement resolved federal Medicaid overpayments based on McKesson's inflated pricing information. State Medicaid agencies can separately negotiate with McKesson to resolve claims based on the states' shares of the Medicaid overpayments.

According to Acting Assistant Attorney General Stuart F. Delery, "[t]his case demonstrates the Department of Justice's commitment to ensuring that Medicaid funds are expended appropriately. . . . Companies that report pricing data that affect government payment rates, whether those companies are manufacturers, wholesalers, or otherwise, are required to report that data accurately."

"This is the latest example of a corporation's intentionally manipulating the complicated system by which drug purchases are reimbursed," said U.S. Attorney Paul J. Fishman. "We have no tolerance for those who take advantage of that system to bring in more business by falsely increasing reimbursements to retailers."

"This settlement with McKesson highlights the Office of Inspector General's commitment to protecting against artificially inflated drug prices," said Inspector General Daniel R. Levinson. "Our analyses of drug price reporting practices - including the use of 'Average Wholesale Price' - have consistently identified excessive Medicare and Medicaid payments resulting from these practices."

Under the qui tam provisions of the False Claims Act, whistleblowers who report fraud and abuse in government healthcare programs, such as Medicaid, are entitled to receive a percentage of the government's recovery. Andrew M. Beato specializes in representing whistleblowers in False Claims Act litigation involving fraudulent pricing schemes by pharmaceutical manufacturers, wholesalers, and retail pharmacies, such as false AWP reporting schemes.

Recently, Reuters reported that an Obama administration task force created in January 2012 to investigate misconduct that caused the financial crisis is set to ramp up cases under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989. This statute, often referred to as FIRREA, was passed in the wake of the savings-and-loan scandals in the 1980s. The Obama task force, which is in the Justice Department, used FIRREA earlier this year when it issued more than a dozen civil subpoenas to top financial institutions, including Citigroup, requiring the production of documents related to mortgage-backed securities offerings between 2006 and 2008.

FIRREA gives the Department of Justice broad investigative tools, including the ability not only to subpoena documents, but also to take testimony from individuals, an ability prosecutors are not normally afforded in civil cases. Moreover, there are provisions that provide financial incentives to whistleblowers who uncover and report fraud. Under these provisions, whistleblowers are entitled to a percentage of the first $10 million recovered by the government. For more information on the whistleblower provisions, click here.

The task force, which includes the Justice Department, the SEC, the FBI and the Department of Housing and Urban Development, and others, is charged with investigating the pooling and sale of home loans that contributed to the financial crisis. The co-chairs meet formally every week and talk almost every day to coordinate on "a range of investigations," a Justice Department official said, on condition of anonymity. The Department of Justice has requested a $55 million increase for the fiscal year beginning in October to increase efforts to combat financial and mortgage fraud. "Significant efforts continue to move forward and if they uncover evidence of fraud or other illegal conduct, we will pursue such conduct aggressively," DOJ spokeswoman Adora Andy said.

While FIRREA was initially designed to prosecute individuals who defraud federally insured financial institutions, it also allows for civil charges for mail and wire fraud. The law allows for civil penalties of up to $1 million for each violation and up to $5 million for continuing violations, with a 10-year statute of limitations.

Continue reading "The Government is Poised to Ramp up FIRREA Investigations" »

On March 2, 2012, the False Claims Act turns 149 years old. For the past 25 years, qui tam lawsuits brought by whistleblowers under the False Claims Act have been the single most effective tool for combating fraud against the government. The False Claims Act owes much of its success - over $30 billion recovered in judgments and settlements since 1986 - to the courage of whistleblowers who not only report fraud to the government, but also provide invaluable assistance in uncovering evidence and explaining highly complex schemes. This remains as true today as it was during post-Civil War reconstruction when the law was passed.

Recently, the Associated Press reported on the status of a new computer system that was launched last summer and is designed to stop Medicare Fraud. Congress expected the system to allow Medicare to stop losing an estimated $60 billion in fraud each year. But by Christmas, the new computer system had prevented just one suspicious payment, which saved taxpayers $7,591.

Medicare officials defended the results achieved by the computer system, stating that suspending payments is only one way of stopping fraud, and that the system has employed other methods as well, including referring cases to investigators and automatically denying suspect claims. According to Medicare, the computer system was designed to prevent Medicare from paying fraudulent claims and to avoid what is sometimes referred to as "pay and chase" - a system where Medicare pays all claims, however suspicious, and reviews its payments after the fact. According to Hank Walther, the former head of the Department of Justice's health care fraud division, "[t]he whole idea for creating this technology was they were going to be able to end pay-and-chase. . . . But we haven't yet seen evidence of its success."

Senator Tom Carper (D-Del), the chairman of a subcommittee that oversees federal financial management, is disappointed with the results of the computer system, which cost $77 million. Senator Carper has called on Medicare to "explain to us clearly that they are implementing the program, that their goals are well-established, reasonable, achievable, and they're making progress." "We're not sure that they've done those things," he added.

Medicare officials stated that screen technology is now being used to evaluate all Medicare inpatient, outpatient and medical-equipment claims before payment. But payment suspensions did not begin until December 2011 - six months after the system was launched.

The contract for the computer system was awarded to Northrup Grumman and a group of other companies, including IBM. Senator Tom Coburn (R-Okla) has questioned whether Northrup has the experience in financial services to lead the project. According to Senator Coburn, "we ought to be seeing savings of $5 billion a month," but "it will be two to three years before we get an effective predictive system."

Continue reading "Whistleblowers Remain Invaluable In The Fight Against Fraud" »

On February 15, 2012, Citigroup, the third largest bank in the United States, agreed to pay $158.3 million to resolve False Claims Act allegations that it defrauded the federal government into insuring thousands of risky home loans made by its subsidiary CitiMortgage. This settlement, which came only a week after Bank of America settled claims of mortgage fraud for $1 billion, resulted from a whistleblower qui tam lawsuit brought by Sherry Hunt, a CitiMortgage employee, in the United States District Court for the Southern District of New York on August 5, 2011.

In her lawsuit, the Hunt alleged that CitiMortgage violated the False Claims Act in connection with its participation in the Direct Endorsement Lender Program administered by the Federal Housing Authority, which is part of the United States Department of Housing and Urban Development. She alleged that CitiMortgage caused "the United States or its departments or agents to insure . . . mortgages originated . . . by Defendants, based upon Defendants' false statements that said loans were consistent with the United States' regulations and rules with regard to the quality of said mortgages or loans . . . ." Specifically, Hunt alleged that CitiMortgage falsely certified that its loans qualified for federal insurance provided by HUD-FHA.

Along with the Stipulation and Order of Settlement and Dismissal filed on February 15, 2012, the government filed a complaint-in-intervention alleging that 9,636 HUD-FHA insured loans have defaulted, costing HUD-FHA almost $200 million in insurance claims. This is more than 30 percent of nearly 30,000 HUD-FHA-insured mortgages made or underwritten by CitiMortgage. In addition, the government alleges that CitiMortgage pressured employees to ignore problems by providing higher salaries and company awards, and that the company failed to self-report loans found to be fraudulent, including loans that defaulted when the first payment became due.

Continue reading "CitiMortgage Settles Mortgage Fraud Allegations Stemming from Whistleblower Lawsuit" »

Last week, the United States Attorney for the Eastern District of New York announced a settlement involving claims against Bank of America, Countrywide Financial Corporation, as well as certain Countrywide subsidiaries and affiliates, for underwriting and origination mortgage fraud. This settlement is part of the global resolution between the United States of America and the five largest mortgage savings banks in the country.

Bank of America's fraudulent lending practices centered on a scheme in which Bank of America, through Countrywide (which Bank of America acquired in 2008), knowingly made loans insured by the Federal Housing Administration (FHA) to unqualified home buyers. As a result of Bank of America's misconduct, FHA incurred hundreds of millions of dollars in damages. Moreover, Bank of America and Countrywide defrauded the FHA insurance fund by originating mortgage loans that were based upon inflated appraisals.

As part of the settlement, Bank of America agreed to pay a total of $1 billion, including an immediate $500 million to provide a recovery for the harm done to the FHA by Countrywide's conduct and a deferred payment of $500 million to fund a loan modification program for Countrywide borrowers across the country with underwater mortgages. Bank of America is required to contact all potentially eligible borrowers and provide a loan modification to any eligible borrower who accepts the offer. Any funds not paid under the loan modification program after three years will be paid to the United States.

Continue reading "Bank of America to Pay $1 Billion in Largest False Claims Act Mortgage Fraud Settlement " »

The United States Attorneys' offices, with the Department of Justice, are responsible for enforcing and recovering civil and criminal debts owed to the United States and criminal debts owed to victims of federal crimes.

Loretta E. Lynch, the United States Attorney for the Eastern District of New York, recently announced that the office collected $75,540,770.04 in civil and criminal actions during fiscal year 2011. Of this amount, $49,418,991.52 was collected in criminal actions, and $26,121,778.52 in civil actions. The office also collected $177,959,332 in criminal and civil forfeitures.

In one case, the Eastern District of New York recovered over $50 million as part of the settlement of a civil forfeiture action involving two brokerage accounts belonging to Jacob "Kobi" Alexander, who is alleged to have orchestrated a massive stock option backdating fraud. The money collected was returned to the victim, Comverse Technology, Inc., which, in turn, used the funds to settle investor and shareholder lawsuits.

In the announcement, Lynch emphasized the importance of these collections during the economic downturn. "The U.S. Attorney's Office is dedicated to protecting the public and recovering funds for the federal treasury and for victims of federal crime. We continue to hold accountable those who seek to profit from their illegal activities."

Nationwide, the 94 U.S. Attorneys' offices collected a total of $6.5 billion in criminal and civil actions this year. Of the $6.5 billion total, $1.3 billion was collected in shared cases in which multiple U.S. Attorneys' offices or Department of Justice divisions were involved in the recovery. This marks the second straight year that over $6 billion has been collected. The $6.5 billion represents over three times the appropriated budget of the 94 U.S. Attorneys' offices for 2011.

To read the press release, click here.

Continue reading "U.S. Attorneys' Offices Nationwide Collects $6.5 Billion in Civil and Criminal Actions in 2011" »

On October 4, 2011, the United States Attorney's Office for the Southern District of New York filed a civil action against The Bank of New York Mellon Corporation ("BNYM") under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"), a statute that was enacted following the savings and loan crisis in the late 1980s.

The lawsuit is based on BNYM's alleged scheme to defraud custodial clients, for whom it holds domestic and international financial assets, including currency and securities. Specifically, BNYM offers a "standing instruction" foreign exchange service under which it automatically provides currency exchange on an as needed basis when, for example, a client buys or sells foreign securities or receives dividends on foreign securities that are repatriated to the United States. BNYM allegedly represents to its clients that the service is free of charge; that the transactions are executed according to "best execution standards," such that they are receiving the best available rate at the time of execution; and that the transaction will fall within a specified daily price range.

Those representations, according to the government, are false, incomplete, and misleading. The lawsuit alleges that this service is far from free; that BNYM waits until the end of the trading day to price standing instruction currency trade and consistently provides clients with the worst rates of the day; and that at the same time, BNYM obtains favorable prices for itself on the spot market, reaping large profits on the price differential or "spread." The government alleges that during the financial crisis in 2008, when currency prices fluctuated dramatically, the profits BNYM generated at the expense of its custodial clients, including federally insured financial institutions, were in the hundreds of millions of dollars.

Continue reading "A Useful Tool for Whistleblowers in Fighting Financial Frauds" »