False Claims Act Gets a Hearing in Congress

Every couple of years or so, corporate lobbyists persuade members of Congress to hold a hearing on the “excesses” of the False Claims Act.

Jonathan Diesenhaus Hogan Lovells

Jonathan Diesenhaus
Hogan Lovells

Today, such a hearing was held before the House Judiciary Committee Subcommittee on the Constitution and Civil Justice.

The lobbyists are interested in chiseling away at the False Claims Act.

And this year, they’ve got a special project.

“The main proposal advanced by these lobbyists is to require corporate whistleblowers to report frauds internally before filing qui tams,” said Neil Getnick of Taxpayers Against Fraud. “Relatedly, they seek to eliminate or narrow False Claims Act liability for corporations that adopt a so-called gold standard or certified, corporate compliance program.”

It was False Claims Act champion and Republican Senator Chuck Grassley who shot down the gold standard corporate compliance argument.

“They talk about a gold-standard compliance certification program, but it’s just a pie-in-the-sky idea with no specifics,” Grassley said in 2014. “They are vague on who would create the program, who would enforce the program – basically, everything about it. But they want you to believe that once this pipe dream is in place, it will magically increase the amount of taxpayer dollars the government recovers.”

“In exchange for this castle in the air, they want to eliminate the use of exclusion or debarment, surrendering one of the government’s strongest tools for deterring fraud. They want to lower the damages multiplier for those who self-report. And they repackage a detrimental proposal to whistleblowers that has been recycled again and again.”

“Large corporations have long argued that whistleblowers should be forced to report wrongdoing internally before going to the government,” Grassley said. “Yet when whistleblowers try to do exactly that and get retaliated against, these large corporations change their stance in court and argue that whistleblowers only have protection if they report externally. Those kinds of inconsistent positions make it hard to believe that either argument is made in good faith.”

“Allowing companies to escape or face reduced liability from FCA actions because they have checked the boxes on how to establish a compliance program is doomed to fail,” Getnick testified. “It will merely encourage companies to game this new compliance regime the same way they game contract and regulatory requirements. Such gaming does not reduce fraud —  it enables fraud.”

“I will note that the False Claims Act already contains a provision that allows corporations to reduce their liability by one third if they self-report a fraud within thirty days of becoming aware of it. This is a rarely used provision, and repeat False Claims Act scofflaws abound. In the end, the overriding goal should be the reform of corrupt industries and markets, not just individual companies. That goal can be achieved only by combining powerful business-driven integrity programs with effective law enforcement. Diluting the False Claims Act will merely reduce the deterrent effect that sanctions have on fraudulent corporate conduct.”

Hogan Lovells partner Jonathan Diesenhaus countered that “given the cost of litigation and the complexity of the regulatory environment in which health care businesses operate, the balance of risks and incentives Congress sought to achieve in the 1986 amendments to the qui tam statute no longer applies.”

“The normal rules of litigation simply do not constrain whistleblowers and their attorneys in the same way that other plaintiffs and their attorneys are constrained. Defendants are left without a remedy when investigations, or more often declined qui tam litigation, come up empty.”

Diesenhaus urged Congress to “reset that balance” by creating greater incentives for compliance and self-disclosure, subjecting frivolous whistleblower claims to the same scrutiny as other plaintiffs under the federal rules of civil procedure, and sending a clear message that Congress expects Department to evaluate declined qui tams for merit and to exercise its statutory authority to dismiss cases that would unjustifiably burden the courts, federal agencies, innovators, small businesses and health care providers.

Grassley submitted testimony today and he was have none of the corporate lobbyists’ arguments.

“In a perfect world, organizations would value input from their employees, work to fix the problems they identify, and go about their business,” Grassley said. “We do not live in a perfect world.”

“For every allegation of a potentially overzealous plaintiff, there is a whistleblower threatened with severe retaliation for raising concerns. These kinds of toxic environments do not magically disappear in the face of the almighty compliance program.”

Grassley gave as an example the $256 million case of U.S. v. Millenium Health is one example.

In this case, the United States alleged the company was engaged in a scheme to bill federal programs for medically unnecessary testing, give kickbacks to doctors, and keep employees from complaining. The complaint gives a taste of the toxic environment existing in that company, stating that during a company presentation on, ironically, the topic of compliance, the company’s general counsel displayed slides showing just what the company would do to an employee who raises concerns: the slides show pictures of a shooting range, a former company employee that the company had sued riddled with photo-shopped bullet holes, and a line of body bags labeled with the names of company competitors and the former employee. As stated in the complaint, the speaker notes for this compliance presentation read: “Don’t be a weasel. . . . I don’t want to be on the other side of litigation from any of you. I hope you don’t want to be on the other side of litigation with Millennium. There is no amount of time or resources we won’t spend to hold our employees accountable. . . .[W]e will protect this company.”

Grassley asked — “What employee in their right mind would disclose anything to anyone about this company without a real incentive and assurance of adequate protection?”

“Whistleblowers need to be able to disclose wrongdoing outside of their organizations. They need strong protections regardless of who first receives their complaint. Protecting internal reporting is important, but requiring it only discourages many would-be whistleblowers with evidence of actual wrongdoing from coming forward. Moreover, when they do, they are often subjected to the hostility of the ill-intentioned manager or worse, as in the case of Millenium Health, the company lawyers. Whistleblowers need their jobs to be safe or they will not come forward.”

“Indeed, if Congress required internal reporting, the evidence shows that companies would wield it as a weapon against whistleblowers. Companies have argued repeatedly in court that internal reports are not protected. Many have used non-disclosure agreements to muzzle whistleblowers.”

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