This article is the second in a three-part series on qui tam actions brought under the False Claims Act. You can read Part One here.
The ability of plaintiffs to receive enormous recoveries under the False Claims Act (“FCA”) has empowered ordinary citizens to face pharmaceutical giants and large health care institutions. The recent proliferation of qui tam actions against pharmaceutical companies resulted in a $3.8 billion recovery by the U.S. Department of Justice (“DOJ”) in 2013. The DOJ has termed fiscal year 2014 the “banner year for civil fraud recoveries.”
The flurry of FCA activity in the health care industry comes as no surprise. The DOJ engages in investigating the pharmaceutical industry partly because prescription drugs account for approximately ten percent of all health care expenditures in the country. In many cases, pharmaceutical companies promote their drugs for off-label uses not approved as safe and effective by the Food and Drug Administration (“FDA”). In November 2013, Johnson & Johnson paid over $2.2 billion to resolve criminal and civil liability for marketing Risperdal for unapproved uses such as anxiety and depression. Similarly, Endo Pharmaceuticals agreed to pay $192.7 million to settle allegations relating to promoting its drugs for off-label uses not approved by the FDA.
Apart from the pharmaceutical industry, there is an increased rate of qui tam actions in healthcare cases as a result of a partnership between the DOJ and the Department of Health and Human Services (“DHHS”), as well as increased incentives offered to whistleblowers. In May 2009, Attorney General Eric Holder and DHHS Secretary Kathleen Sebelius formed an initiative titled the Health Care Fraud Prevention and Enforcement Action Team (“HEAT”) to reduce and prevent Medicare and Medicaid fraud. Additionally, in April 2013 the Centers for Medicaid and Medicare Services (“CMS”) proposed a rule encouraging individuals to report information on entities that submit claims under the Medicare program without meeting all of the requirements. The proposed rule enables an individual to potentially receive up to fifteen percent of the amount recovered.
As a result of such initiatives, two prominent whistleblower cases against hospital systems have arisen in which the hospitals were ordered to pay fines for violating the FCA by submitting false claims to Medicare. The Tuomey Healthcare System was ordered by a judge in the U.S. District Court for the District of South Carolina to pay $237 million in fines. Florida-based Halifax Hospital Medical Center and Halifax Staffing, Inc. agreed to pay $85 million to resolve allegations of Medicare fraud.
One of the main similarities between entities agreeing to settlements in these types of cases is a five-year Corporate Integrity Agreement. Under this agreement with the federal government, entities not only agree to undertake substantial internal compliance reforms, but they may also agree to submit details of business operations to the government in an effort to increase transparency and accountability and ultimately prevent fraud and abuse.
Although there are increased incentives for individuals to report fraud and abuse, and relators have contributed to significant government recoveries, a relator’s claims can easily fall apart in front of a jury. A juror interviewed in a qui tam lawsuit against TAP Pharmaceuticals commented that, “all [the jurors] thought [the whistleblower] was a greedy son-of-a-gun who was out there for himself.” Despite the uphill battle, relators in recent years have not been deterred from bringing FCA actions in light of the potential windfall of millions.