When illegal activity takes place within a company or organization, it is often only the employees who can recognize it and bring it forward to the government’s attention. In order to encourage the reporting of fraud and wrongdoing, Congress and most states have enacted laws that reward citizens who report it to the government. For example, under the federal False Claims Act, an employee who reports the employer’s fraud is eligible to receive a minimum of 15% of what the government recovers.
The financial reward to the employee in these kind of cases has been tremendous:
September 9, 2016 — Ricardo Gonzales, former employee of Los Angeles-based nursing home Westlake Convalescent Hospital, will receive a whistleblower award of $534,471 from the roughly $3.6 million Westlake and two of its physicians agreed to pay to resolve charges they violated the False Claims Act by participating in a scheme to improperly transfer patients recruited from the “Skid Row” district to a hospital for medically unnecessary services, and then transfer the patients from the hospital to the nursing home for medically unnecessary stays.
August 24, 2016 — Six former employees of defunct for-profit cosmetology school B&H Education, Inc., which operated the Marinello Schools of Beauty in locations across Southern California, will receive a whistleblower award of $2.5 million from the $8.6 million B&H’s insurance carrier agreed to pay to resolve allegations that B&H violated the False Claims Act by obtaining federal student loan funds for ineligible students who received bogus high school diplomas.
August 17, 2016 — A former medical assistant who worked for Dr. David Spellberg of Naples Urology Associates in Florida, a division of 21st Century Oncology, will receive a whistleblower award of $37,500 from the $250,000 Florida urologist Robert A. Scappa agreed to pay to resolve allegations that he violated the False Claims Act by causing claims to be submitted to federal health care programs for laboratory tests that were not medically necessary. Scappa was a urologist with 21st Century Oncology division Scappa Urology. The whistleblower previously received a whistleblower award of $3.2 million from the $19.75 million settlement previously reached with 21st Century Oncology. The medical assistant was represented by Benjamin H. Yormak.
August 3, 2016 — The U.S. Tax Court made a whistleblower award of $17.8 million to a pair of whistleblowers which for the first time includes a portion of criminal fines and civil forfeitures in addition to part of the taxes the government recouped because of information they provided.
Kinds of Fraud & False Claims
- Services Not Rendered: The submission of a claim for health care services, treatments, diagnostic tests, medical devices or pharmaceuticals that were never rendered.
- Ghost Patients: The submission of a claim for health care services, treatments, diagnostic tests, medical devices or pharmaceuticals provided to a patient who either does not exist or who never received the service or item billed for in the claim.
- Kickbacks: The federal Anti-Kickback Statute prohibits any offer, payment, solicitation or receipt of money, property or remuneration to induce or reward the referral of patients or healthcare services payable by a government health care program, including Medicare or Medicaid. These improper payments can come in many different forms, including, but not limited to: referral fees; finder’s fees; productivity bonuses; discounted leases; discounted equipment rentals; research grants; speaker’s fees; excessive compensation; and free or discounted travel or entertainment.
- Up-Coding Services: Government health care programs assign a dollar amount it will pay for each procedure code. Up-coding occurs when a health care provider submits of a claim for health care services, treatments, diagnostic tests or items which represent a more serious and more expensive procedure than that which actually was performed.
- Bundling and Unbundling: One common type of fraud has been to “unbundle” procedures or tests and bill each one separately, which results in greater reimbursement than the group reimbursement rate.
- Lack of Medical Necessity: One common type of fraud has been to submit claims for services, treatments, diagnostic tests, and medical devices that are not medically necessary.
- False Certification: When physicians, hospitals and other health care providers submit bills to government health care programs they are required to include a number of important certifications, including that the services were medically necessary, were actually performed, and were performed in accordance with all applicable rules and regulations. Additionally, health care companies such as pharmaceutical companies and pharmacy benefits managers that provide products or services to government health care programs are required to certify that they are satisfying all obligations under their contracts with the government. One common type of fraud has been to falsify these certifications in order to get a health care claim paid or to obtain additional business.
- Research Grant Fraud: Some of the common forms of research grant fraud include: falsifying a grant application in order to secure a grant; falsifying research data and results; over-billing costs and other expenses associated with the grant; using grant money for other unrelated research; and improper conflicts of interest by the principal investigators.
- Improper Financial Interest: Perhaps the best known of these “Anti Self-Referral” laws is commonly known as the Federal Stark law. The Stark law generally prohibits physician investment interests and compensation arrangements with entities that perform certain designated health services to which they refer patients or from which they order goods and services paid for by Medicare or Medicaid. The Stark law covers not only investments and compensation paid to the physician, but to any member of the physician’s immediate family.
- Inflating Cost Reports: One common type of fraud has been for hospitals to inflate the costs on their Medicare Cost Reports, or to otherwise falsify the information on these reports to maximize its reimbursement.
- Red-Lining: One common type of fraud has been for hospitals and particularly insurance companies, to discourage enrollment by persons they deem to be sicker or at higher risk for serious illness. Such discriminatory practices commonly referred to as “red-lining,” can violate Federal and State laws and can also be a violation of the Federal False Claims Act.
- Medicare Part D Fraud: One common type of fraud is duplicate billing, overcharging, enrollment fraud, red-lining, and improper rebates from pharmaceutical manufacturers and wholesalers.
- Off-Label Marketing of Drugs: One common scheme by pharmaceutical manufacturers has been to market or promote their drugs to physicians for an off-label or unapproved use. Although physicians may prescribe a drug for an off-label use, pharmaceutical companies violate federal law, including the False Claims Act, when they market, promote or encourage physicians to use their drugs in an off-label or non-FDA approved manner. Pharmaceutical companies that have engaged in illegal off-label marketing or promotion of their drugs have paid the Government hundreds of millions of dollars as a result of Federal False Claims Act cases, often times brought by pharmaceutical sales representatives, sales managers, compliance officers, other pharmaceutical company employees, physicians, nurses and/or employees of hospitals or physician practices.
- Illegal Kickbacks: One common scheme has been for pharmaceutical companies to provide payments or other financial incentives to hospitals and/or physicians in order to induce them to prescribe their drugs to patients. Such payments or financial inducements can come in many forms, including:
- Bonus payments to physicians and hospitals;
- Free or reduced cost vacations;
- Lavish dinners and lunches;
- Tickets to sporting events, other forms of entertainment and golf outings;
- Payments for attending conferences, lectures or other meetings;
- Payments for serving on “advisory boards” which are excessive compared to the work being performed;
- Joint business ventures between pharmaceutical companies and hospitals or physicians;
- Research funding and unrestricted educational grants;
- Phony or sham drug trials; and
- Free samples of drugs, which physicians then sell to patients.
Pharmaceutical companies have also been known to provide financial inducements to insurance companies and Group Purchasing Organizations (“GPO’s”) to place their drugs on that insurer’s preferred drug formulary, which can substantially increase the sales volume for those drugs. These illegal financial inducements can also come in many forms, including: data fees in which the pharmaceutical company pays the insurer for data on their members; rebates; discounts; and joint business ventures.
- Inflating the Price of Pharmaceuticals: Medicare and many State Medicaid programs determine the amount they will pay for drugs based upon a figure known as the Average Wholesale Price (“AWP”) for that drug. The AWP is determined by information reported by pharmaceutical manufacturers. One common type of fraud has been for pharmaceutical manufacturers to inflate the AWP of their drugs and to use that inflated cost to provide a financial inducement for Pharmacists, Pharmacy Benefits Managers (“PBMs”); Insurers; and Group Purchasing Organizations to prescribe their drugs. Pharmaceutical manufacturers provide such financial inducements through what is known as “marketing the spread.” In this scheme, the “spread” is the difference between (1) the actual cost that the pharmacist pays for a drug and (2) the price that the Government (Medicaid) will pay for dispensing that drug, which is determined by the AWP for the drug. As a financial inducement to prescribe their drugs, pharmaceutical manufacturers have inflated the AWP, thereby increasing the “spread” between the actual cost of the drug and the amount that the Government pays for that drug. Pharmaceutical manufacturers have marketed this fraudulently inflated profit as a means of inducing Pharmacists, Pharmacy Benefits Managers (“PBMs”); Insurers; and Group Purchasing Organizations to prescribe their drugs.
- Best Price Fraud: In order for a pharmaceutical manufacturer to sell its drugs to the Medicaid Program, it must agree to charge the program the lowest price at which the manufacturer sells to drug wholesalers, pharmacists, HMOs, Group Purchasing Organizations, and other private sector customers. In order to induce these private insurers, wholesalers, pharmacists and businesses to purchase and prescribe their drugs, and to include them on their preferred formularies, pharmaceutical manufacturers have offered their drugs at prices below the Best Price offered to Medicaid. Many times these discounted or nominal prices are concealed from the Government through other agreements between the pharmaceutical companies and the private insurers, wholesalers, pharmacists and businesses. The pharmaceutical companies conceal these discounts so as to avoid having to provide rebates to Medicaid to match the discounted price they are providing to private insurers, wholesalers, pharmacists and businesses.
Construction & Procurement Fraud
Federal and state Governments spend billions of dollars each year on a wide variety of construction projects, ranging from highways and bridges to government office buildings and federally subsidized private homes. These massive government construction programs have been a frequent target for fraud. Some of the most common types of fraud involving government construction contracts include:
- Falsifying Minority Contractor Status
- Illegal Kickbacks
- Overcharging Materials
- Overcharging Man Hours
- Substandard Materials
- Substandard Workmanship
- Failing to follow contract specifications
- Falsified Progress Reports and Documents
In addition to fraud involving construction projects, the government has also been the victim of fraudulent and false claims in connection with the procurement of goods, materials and services. Each year, federal and state governments spend billions of dollars purchasing goods, materials and services for use by government workers and in various government programs. These items include such things as: computers; office equipment, office space; vehicles; construction equipment; fuel; food; security services; and consulting services. Each time the federal or state governments spend money purchasing or procuring goods, materials or services there is a potential for fraudulent or false claims. Some common types of fraud include: bid-rigging; overcharging; providing used or sub-standard goods or materials; or failing to follow contract specifications.
Financial Industry Fraud
- Ponzi schemes, in which investors are paid with their own funds or those of other investors, instead of with profits from their investments.
- Front running, in which a trader (often operating the trading venue itself) is aware of pending customer orders for a security and buys or sells unfairly.
- Accounting fraud, in which accountants fail to identify false information made by clients regarding their financial status.
- Outright theft from investors (embezzlement by stockholders).
- Pump-and-dump schemes and stock manipulation, including false statements regarding a public company’s financial reports and lying to corporate auditors.
- Mutual fund fraud, which entails deceptive acts that disadvantage customer investors in these funds.
- Insider trading, in which trades are made based on information not disclosed to the public and acquired from a company insider or related party.